ACO Specialty Care Analysis: Orthopedic Surgeons by Cost and Quality

This is Part II of a blog series on integrating bundles within accountable care models

In Part I of our blog series, we discussed the importance of integrating bundles within an accountable care model to achieve coordinated, high value specialty care. A critical step to setting meaningful cost and quality targets for shadow bundles is to evaluate the drivers of specialty care variation. Assessing cost components and outcomes measures for acute and chronic episodes of care helps engage specialists and informs actionable steps to more efficient, high quality care. Cost and quality variation analysis also helps identify high value providers who are strong candidates for sub-capitation arrangements, which allow ACOs to better manage and transfer risk.

To illustrate CareJourney’s approach to evaluating drivers of variation in cost and quality, we’ve selected an example episode of care, hip replacement, for a blinded Medicare ACO that has been participating in two-sided risk for several years. In the following, we demonstrate how granular variation in cost and quality within hip replacement episodes among surgeons can provide the foundation for a variety of improvement interventions, including high value network specifications and bundled payments.

Hip replacement episodes, which are triggered by specific procedure codes and include all related spending within 90 days post discharge, are among the top 10 highest spend episodes in the country, triggering nearly 160,000 episodes among Medicare FFS beneficiaries in 2022 that totaled nearly $3.8B in spending. The graph below shows the top ten highest spend episodes nationwide among Medicare FFS beneficiaries, with their corresponding interquartile range and average episode price. As we can see, hip replacement has among the highest interquartile variation among this cohort. Coupled with its high volume, this episode serves as a beneficial example to evaluate performance opportunities.

Figure 1: Top Episodes by Annual Spend, 2022 Medicare FFS Claims Data

Hip replacement is a strong candidate for integrated bundle programs because these episodes generate wide variation in spend in nearly all markets. As a procedural episode, some surgeries can be proactively referred to high performing orthopedic specialists, though trauma cases cannot realistically be referred to specific specialists. The disparity in risk profile among those receiving hip replacements, ranging from frail elderly patients needing surgery after a fall to relatively healthy patients seeking to maintain active lifestyles, underscores the importance of robust risk adjustment to make credible comparisons of cost and quality.

To depict cost variation for hip replacement episodes, we’ve analyzed performance among the top 10 highest referred surgeons for our example Medicare ACO, “ACO 123”. The graph below provides a credible representation of variation in average cost among these surgeons, whose names have been blinded. Each surgeon is represented by a bubble; the size of the bubble corresponds with the annual volume of the surgeon, the vertical placement corresponds with the surgeons’ average episode cost, and the horizontal placement corresponds with the surgeons’ Observed to Expected (O:E) Cost Ratio, as derived from CareJourney’s robust risk adjustment methodology. The colors of the bubbles depict surgeries done in the inpatient (IP) versus outpatient (OP) setting.

Figure 2. Top Orthopedic Surgeons by ACO 123 Referral Volume

The observed episode expenditures for a provider are 99% winsorized to eliminate outlier data. The expected expenditures for a provider are modeled and adjusted for clinical risk, demographic and geographic factors creating an expected episode cost unique to each provider. O: E ratios greater than 1 show that the provider had higher expenditures than the CareJourney risk adjustment model predicts. Conversely, O:E ratios less than 1 show providers that are more cost effective.

The visualization above helps demonstrate which providers have the greatest savings opportunity, with providers to the right of the dotted line having O:Es greater than 1 and more likely to have savings opportunity. Dr. Alpha stands out as an outlier, even among IP episodes, as being high cost.

Breaking Down Episode Costs

To identify drivers of addressable spend, CareJourney breaks down episode spend into subcategories and site of service. Among this set of surgeons performing hip replacements, a large driver of the difference in cost is inpatient spend after the initial procedure, including acute readmissions and admissions to inpatient rehabilitation facilities (IRFs) and Long Term Care Hospitals (LTCHs). As an example, Figure 3 shows spending by service category for Dr. Alpha’s surgeries that were performed in the inpatient setting. The blue bars represent average observed spend, while the red bars represent average expected spend. As we can see, Dr. Alpha’s average postoperative inpatient (“POST – IP”) spending is over twice as high as expected. If Dr. Alpha brought their post-procedure inpatient spend to the expected level, they could save 10.8% on their average episode cost, or approximately $4,700 per case.

Figure 3: Dr. Alpha’s Inpatient Hip Replacement Episodes, by Spend Category

Delving deeper into these spend categories, we can see most of Dr. Alpha’s excess postoperative inpatient spend is due to IRF and LTCH utilization, and to a lesser extent, planned admissions (Figure 4).

Figure 4: Breakout of Dr. Alpha’s Postoperative Inpatient Spending

Turning our focus to efficient providers, Figure 2 above shows us that for their inpatient hip replacement episodes, Drs. Theta and Eta have average episode spend that is lower than expected. We can see in subsequent Figures 5 and 6 that, in contrast to Dr. Alpha, both surgeons have postoperative inpatient spending that is lower than expected. We can also see these surgeons may have some potential opportunity for post-acute care optimization, with skilled nursing facility (SNF) spending being higher than expected and home health agency (HHA) spending being lower than expected, though overall they deliver cost effective care.

Figure 5: Dr. Theta’s Inpatient Hip Replacement Episodes, by Spend Category

Figure 6: Dr. Eta’s Inpatient Hip Replacement Episodes, by Spend Category

These specialists may be strong candidates for a sub-capitation arrangement with the ACO, which would allow the ACO to shift risk onto the surgeons or surgical practice. The surgeons could benefit from this carve out arrangement by earning incentives for continuing to deliver high value care, in addition to receiving more referred volume from the ACO.

Focusing on Quality

A mechanism to ensure strong quality performance is a foundational component of a successful integrated bundles program. Measures such as Unplanned Readmissions per 1,000 Episodes, ER Visits per 1,000 Episodes, Complication Cost per Episode, Average LOS of Institutional Long-term stay (including SNF, IRF and LTCH), and risk-adjusted mortality rate should be used to set quality thresholds that providers must attain to be eligible for performance based payment.

Comparing the risk adjusted observed to expected values for this set of orthopedic surgeons, Dr. Alpha has higher than expected spending, however their ER visit rate (Figure 7) and unplanned readmission rate (Figure 8) are better than expected. In Figures 7 and 8, a value above the X axis (set to an Observed : Expected ratio of 1) indicates performance is worse than expected, while a value below the X axis indicates performance is better than expected. Under a performance based payment arrangement, Dr. Alpha should be eligible to earn savings payments if they reduced average cost and maintained strong quality scores.

Figure 7: ER Visits Among Hip Replacement Episodes, by Orthopedic Surgeon

Figure 8: Unplanned Readmissions among Hip Replacement Episodes, by Orthopedic Surgeon

Conversely, while Dr. Delta’s average observed spending is in line with their expected spending (shown in Figure 2), their patients’ unplanned readmissions and ER visit rates are significantly higher than expected. In both Figures 7 and 8, Dr. Delta has the poorest performance scores in these quality metrics among their peers. Using the claims data to further drill into the reasons for these complications, we find they are largely preventable. The top reasons for unplanned readmissions among Dr. Delta’s hip replacement episodes are:

• Sepsis
• Skin debridement or graft, and
  Complications of treatment

The top reasons for ER visits following Dr. Delta’s hip replacement surgeries are:

• Complications of internal orthopedic prosthetic device, and
• Syncope and collapse

On average, across all hip replacement episodes, Dr. Delta’s unplanned readmission and ER Visits generate nearly $700 in excess spending per case, approximately 2% of total episode spend. More importantly, their patients’ experience is negatively impacted.

In a value-based payment arrangement, Dr. Delta should be required to achieve stronger quality performance before being eligible to earn savings, despite their average cost being in line with expected. Employing patient-focused approaches to high quality care, including using screening tools to identify patients at higher risk of adverse outcomes, engaging patients and caregivers around wound care and early detection of infection, screening for and addressing social drivers of health, optimizing post-acute care, physician coaching, and strengthening other pre, intra and post operative infection prevention protocols can help reduce the complications Dr. Delta’s patients are experiencing. Integrated bundles, with a value-based payment arrangement in place between the ACO and Dr. Delta, can be an effective vehicle to enforce these principles.

Putting it All Together – Achieving Savings with Effective Financial Arrangements

For elective hip replacements, our Example ACO could refer patients to higher performing surgeons in the market to capture better outcomes for their patients. If overhauling referral patterns is not realistic for an ACO, an effective integrated bundle program, in which orthopedic specialists have financial incentives to act on addressable performance levers and coordinate with longitudinal care providers, could help capture this achievable savings.

Among our cohort of orthopedic surgeons currently referred to by Example ACO, total potential savings opportunity for hip replacement episodes is, on average, over 3% of episode cost, totaling nearly half a million dollars for this ACO’s attributed patient population. Average savings opportunity of 3-5% of episode spend is common for many episodes of care, even among ACOs that have been participating in downside risk arrangements for years. To help capture this opportunity, ACOs can set up a savings pool from which funds could be distributed to high performing surgeons if cost and quality thresholds are met.

As discussed previously, sub-capitation arrangements can also be used to engage strong performers and incentivize continuous high value care. By leveraging risk adjusted prices paid at the time an episode is triggered, high value providers benefit from predictable cash flow and ACOs benefit through the transfer of risk. Depending on referral patterns, surgeon volume, health system affiliations and other market dynamics, gainsharing contracts or sub-capitated arrangements might be optimally structured at the group or specialist level.

Robust risk adjustment in which observed episode spend can be compared to expected episode spend is critical to ensure financial targets are fair; similarly, episode definitions and inclusion criteria should be transparent and clinically relevant. Peer benchmarking should be used to establish meaningful quality thresholds and engage specialists. In addition to market level comparisons, benchmarks set by competitors and like-organizations in other geographical markets can help engage providers around care transformation.

While hip replacement alone has enough volume to validate an integrated bundles program for our blinded ACO, a service line approach, such as for a cohort of musculoskeletal episodes, could help ACOs enhance alignment with a specialty group. A service line approach is particularly advantageous when opportunities for cost reduction and quality improvement are common across a clinical category, as well as when the financial opportunity for one particular episode is insufficient to mitigate risk from low-volume volatility. Similarly, a successful bundle program should align incentives across multiple payers, such as Medicare FFS accountable care arrangements and Medicare Advantage contracts, to reinforce goals and maximize return on investment. When contracting at the group and service line level, variation among individual specialists should continue to be evaluated as a vehicle for ongoing engagement.

Lastly, ACOs should consider multi-year value-based payment arrangements in which cost and quality targets are titrated over time based on specialists’ ability to improve performance scores and their experience in risk arrangements. A glidepath to additional quality performance requirements and/or increasing levels of risk gives providers necessary time to influence actionable levers.

Key Takeaways

• Understanding specific drivers of cost variation and excess spending is critical to prioritizing action steps
• Quality measurement is essential to ensuring integrated bundles are value-based
• Contracting at the group and/or service line level can increase return on investment and reinforce program goals, though variation at the individual specialist level should continue to be evaluated to drive continuous performance improvement
• Risk adjustment and peer benchmarks are necessary to set fair prices and meaningful performance targets
• Evaluating episode opportunity among Medicare FFS beneficiaries helps prepare value based organizations for success under other risk arrangements, such as with Medicare Advantage payers