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Opportunities for Surgical Leadership in Managing Population Health Costs

Nathan, Hari MD, PhD; Dimick, Justin B. MD, MPH

doi: 10.1097/SLA.0000000000001759
Surgical Perspectives

Department of Surgery, University of Michigan, Ann Arbor, MI.

Reprints: Hari Nathan, MD, PhD, Department of Surgery, University of Michigan Health System, 2210D Taubman Center, 1500 E Medical Center Dr, Ann Arbor, MI 48109-5343. E-mail:

Disclosure: J.B.D. is the cofounder of ArborMetrix, a company that makes software for profiling hospital quality and efficiency. No funding was received for this work. The authors declare no conflicts of interest.

The concept of population health management—long a mainstay in primary care and chronic disease management—is taking root in surgery. The 2010 Affordable Care Act (ACA) ushered in the implementation of several innovative payment models that shift accountability for population costs to health systems and providers. These changes in American population health costs care financing will create both a mandate and an opportunity for surgeons to actively participate the management of population health costs.

These payment experiments signal a sea change in healthcare financing in the United States. The Centers for Medicare and Medicaid Services (CMS) aims to have 50% of all Medicare payments tied to such alternative payment models by 2018.1 To date, CMS has primarily focused these initiatives on chronic medical conditions, but a stronger focus on surgical care is clearly on the horizon. For example, total hip and knee arthroplasty are now included in the Hospital Readmissions Reduction Program, with coronary artery bypass grafting soon to follow. The Comprehensive Care for Joint Replacement (CCJR) program will make bundled payment for joint replacements mandatory for hospitals in 75 regions. Given that inpatient surgery accounts for 40% of all hospital and physician spending in the United States,2 it is inevitable that more surgical procedures will be included in future payment experiments.

The payment innovation that is most disruptive to traditional fee-for-service medicine is the Accountable Care Organization (ACO). ACOs are groups of physicians, hospitals, and other healthcare providers that are organized and incentivized to improve the quality, efficiency, and value of care for their patients. The common thread in ACOs is that providers share the rewards of healthcare cost savings, and in some cases the risks of cost overruns. ACOs represent an ideal vehicle for surgeons to immediately impact population-based management of surgical costs. They are the most prominent and popular model of population health management and therefore serve as a laboratory for cost-saving experiments. Both the CMS and private payers are supporting the establishment of ACOs, and over 23 million Americans are now covered by more than 740 public and private ACOs.3 The largest single such program is the Medicare Shared Savings Program (SSP), which includes almost 8 million patients in 404 SSP ACOs.4 This scale will allow innovations in surgical cost management to be conducted on a population level and have broad immediate impact.

ACOs have historically focused on chronic medical conditions, but going forward they must also focus on surgical care and will require surgical leadership to do so. Unfortunately, surgeons are woefully underrepresented in the leadership of ACOs.5 Under the Medicare SSP ACO program, patients are assigned to ACOs based on where they receive the plurality of their primary care services. However, ACOs are accountable for the entirety of their patients’ healthcare costs, including costs of specialist services such as surgery. Despite this, ACOs leaders have largely ignored surgical care.5 As ACOs exhaust the “low-hanging fruit” of healthcare cost reduction, they must inevitably broaden their focus to include specialist services such as surgical care.5

Existing ACO cost-reduction strategies for chronic medical conditions may not be directly applicable to surgical care, but their underlying principles might inform the design of surgery-specific initiatives. Surgeon champions will be needed to design and evaluate such strategies. For example, a fundamental ACO cost-reduction approach is to identify and reduce expenditures for the highest-cost medical patients, a strategy dubbed “hot-spotting.”6 Healthcare spending is concentrated on relatively few individuals, with 1% of the population accounting for over 20% of total expenditures and the top 5% for 50%.7 ACOs typically seek to reduce utilization by these highest-cost patients. The holy grail of ACO hot-spotting is avoidance of inpatient hospitalization for exacerbations of chronic conditions such as diabetes and congestive heart failure. After many complex surgical procedures, however, inpatient care cannot be altogether avoided.

One approach to reducing surgical population health costs would be to do less surgery. ACOs may be able to indirectly reduce discretionary surgery over time by funneling patients to surgeons who are more selective in recommending surgery. However, more direct attempts by ACOs to interject themselves into the surgeon-patient relationship and impact treatment decisions would likely be rejected by both patients and providers. Furthermore, as long as fee-for-service (vs capitation) remains the dominant payment model for providers, financial incentives will remain fundamentally misaligned with the goal of reducing discretionary procedures. Although addressing overutilization and appropriateness should be part of a broader strategy to reduce healthcare costs, ACOs are not particularly well positioned to tackle these issues.

On the other hand, ACOs may be ideally positioned to reduce the cost per episode of surgical care by improving efficiency and quality for medically necessary, but expensive, inpatient surgical procedures. Surgeons understand the entire pathway of care that may ultimately impact costs. Expenditures related to inpatient surgery include not only those of the index hospitalization, but also the costs of readmissions, physician services, and postdischarge ancillary care (including rehabilitation hospitals, home health care, skilled nursing facilities, and nursing homes). Because they are accountable for the totality of their patients’ healthcare costs, ACOs have no incentive to promote cost-shifting between these domains with no net savings. On the other hand, they have every incentive to reduce the total cost of the episode of care. By better understanding the nature of cost variation among their surgical patients, including both patient and health system factors that influence costs, surgical leaders in ACOs might identify and employ effective cost-reduction strategies in a targeted, procedure-specific manner.

In addition to aiming to reduce costs for individual patients, ACOs might also implement referral policies that could achieve savings for large groups of patients. Occurrence of postoperative complications can dramatically increase surgical costs,8 and much of the variation in surgical episode costs between hospitals is attributable to differences in hospital quality.9 ACOs could exploit this hospital cost variation by selectively referring patients to nearby higher-quality, lower-cost hospitals. Depending on the market and on hospital capacity, ACOs might choose to refer all patients undergoing a particular surgical procedure, or just a subset of the highest-risk, highest-cost patients. A secondary benefit of such a selective referral strategy would be to spur quality improvement and cost containment efforts by the providers of surgical care seeking to maintain these large blocks of surgical referrals.

Approaches to implementation of selective referral might vary depending on ACO structure. Physician-led ACOs without hospital affiliations could make referral decisions based on cost alone, without concern for potential lost hospital revenue. Hospital-affiliated ACOs could take advantage of the recent proliferation of horizontally integrated healthcare delivery networks.10 For example, ACOs affiliated with large integrated delivery systems could designate specific within-network hospitals as referral centers for particular procedures. Because these cases would ultimately be preserved within the network, concerns about reduced hospital caseload should not discourage such optimization strategies. Surgeons’ clinical insights into postoperative care will be necessary to determine the appropriate setting for each procedure by matching procedural complexity to hospital resources.

Patient preferences for local care should also be considered. Low-cost providers are also likely to be high-quality providers,9 so patients may need little additional incentive to seek care from an ACO's preferred surgical provider. ACOs should also seek to understand and reduce burdens such as travel costs placed on patients by a strategy of selective referral. Nonmonetary, health-related incentives to patients (such as access to enhanced care navigation or a preoperative optimization program) might serve to reinforce the desired referral patterns by improving the patient experience. Further work is needed to assess whether hot-spotting and selective referral would be effective strategies for ACOs and to understand the potential challenges to their implementation (Table 1).



These approaches may not be effective or feasible for all procedures or all ACOs. Surgical health services researchers and surgical leaders in ACOs should assess whether these strategies would have utility in surgical ACO populations. For example, hot-spotting assumes that costs are concentrated enough that a relatively small high-cost cohort can be identified for intensive intervention. The degree of cost concentration in surgical populations is unknown. Furthermore, patient factors that can prospectively identify high-cost surgical patients, such as specific chronic conditions or combinations of chronic conditions (multimorbidity), are largely undefined. A selective referral strategy assumes that a nearby, lower-cost hospital exists, which may not be the case for all ACOs. Furthermore, ACOs with a single large hospital participant may be hesitant to refer cases elsewhere, even if quality and costs are better.

The degree to which such limitations would impact the feasibility of hot-spotting and selective referral in surgical ACO populations is currently unknown. Other approaches should be explored as well. As ACOs begin to consider these and other approaches for managing the costs of surgical care, surgeons will need to understand these important concepts to earn their seats at the table. Only by leading this change can we ensure that surgical quality and the surgeon-patient relationship are preserved as we improve the efficiency of the care we provide.

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