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Archive February 2017 XVIII, No. 2

Are Bundled Payments Good for Surgery?

How to capitalize on the popular payment model that sets a flat price for all the care you'll deliver before, during and after surgery.

Daniel Cook

Daniel Cook, Editor-in-Chief


knee surgery HARDWARE SAVINGS Bundled payments cap the costs of expensive hip and knee implants.

It's easy to see why bundled payments appeal to payers and employers. The popular value-based model that pays providers a flat price for all of the care they'll deliver before, during and 90 days after surgery reduces spending and improves patient outcomes. But are bundled payments a good deal for surgeons and surgical facilities? That depends on how well you negotiate the bundled payment and, as you can see in the table below, how much distance you put between your set fees and your variable costs. Either way, as the push continues to pay for surgery on the basis of quality over quantity, bundled payments have emerged as an increasingly popular model — especially in orthopedics.

Bundled payments are ideally suited for such big-ticket procedures as joint replacements, where the great deal of post-op care presents a significant opportunity for cost-effective rehab. Bundles for joint replacements vary significantly by geographic region, but typically range from $25,000 to $35,000, says Alexe Page, MD, an orthopedic surgeon and health services consultant based in La Jolla, Calif. Consider that an infected joint can cost $150,000 to treat and you see why insurers are interested in offloading the surgical risk to willing facilities, which are then responsible for ensuring the surgery and recovery go as planned.

"It's the facilities that must pay for readmissions, repair operations and new implants if infections occur within the 90-day global period," says Dr. Page. "Treating an infection for $150,000 wipes out every bit of profit, and then some, from an episode of care gone wrong."

What facilities need to do is demonstrate how they can provide the same quality of care at a lower cost, and show insurers that they're willing and able to shoulder some of the risk, says Dr. Page. The responsibility to approach insurers and sell them on the financial benefits of bundled payments lies with individual facilities.

In addition to total joints, bundled payments are also attractive fits for spine and hysterectomy procedures, says Dr. Page. "Use of bundles will continue to accelerate," she says. "There's going to be a huge paradigm shift in payment structure over the next decade."

Here's What a Total Knee Bundled Payment Looks Like

Bundle element
Negotiated fee
Actual cost
Pre-op visit
Surgeon fee
Facility fee
Implant allowance
Post-op office visits
Durable medical equipment
Physical therapy
Transportation to recovery suite
Recovery nursing
Recovery suite (hotel lease)

An orthopedic surgical center negotiated a knee arthroplasty bundle for $24,105. The bundle is comprised of a flat price for 11 elements, from the pre-op visit to recovery. If the facility spends $12,254 on the entire episode of care, as in this hypothetical example, it would net $11,851 for each arthroplasty.

— Daniel Cook

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