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2018 John Charnley Award

Analysis of US Hip Replacement Bundled Payments

Physician-initiated Episodes Outperform Hospital-initiated Episodes

Murphy, William S., AB; Siddiqi, Ahmed, DO; Cheng, Tony, MBA; Lin, Ben, BA; Terry, David, MBA; Talmo, Carl T., MD; Murphy, Stephen B., MD

Clinical Orthopaedics and Related Research®: February 2019 - Volume 477 - Issue 2 - p 271–280
doi: 10.1097/CORR.0000000000000532

Background The Centers for Medicare & Medicaid Services (CMS) launched the Bundled Payment for Care Improvement (BPCI) initiative in 2013 to create incentives to improve outcomes and reduce costs in various clinical settings, including total hip arthroplasty (THA). This study seeks to quantify BPCI initiative outcomes for THA and to determine the optimal party (for example, hospital versus physician group practice [PGP]) to manage the program.

Questions/purposes (1) Is BPCI associated with lower 90-day payments, readmissions, or mortality for elective THA? (2) Is there a difference in 90-day payments, readmissions, or mortality between episodes initiated by PGPs and episodes initiated by hospitals for elective THA? (3) Is BPCI associated with reduced total Elixhauser comorbidity index or age for elective THA?

Methods We performed a retrospective analysis on the CMS Limited Data Set on all Medicare primary elective THAs without a major comorbidity performed in the United States (except Maryland) between January 2013 and March 2016, totaling more than USD 7.1 billion in expenditures. Episodes were grouped into hospital-run BPCI (n = 42,922), PGP-run BPCI (n = 44,662), and THA performed outside of BPCI (n = 284,002). All Medicare Part A payments were calculated over a 90-day period after surgery and adjusted for inflation and regional variation. For each episode, age, sex, race, geographic location, background trend, and Elixhauser comorbidities were determined to control for major confounding variables. Total payments, readmissions, and mortality were compared among the groups with logistic regression.

Results When controlling for demographics, background trend, geographic variation, and total Elixhauser comorbidities in elective Diagnosis-Related Group 470 THA episodes, BPCI was associated with a 4.44% (95% confidence interval [CI], -4.58% to -4.30%; p < 0.001) payment decrease for all participants (USD 1244 decrease from a baseline of USD 18,802); additionally, odds ratios (ORs) for 90-day mortality and readmissions were unchanged. PGP groups showed a 4.81% decrease in payments (95% CI, -5.01% to -4.61%; p < 0.001) after enrolling in BPCI (USD 1335 decrease from a baseline of USD 17,841). Hospital groups showed a 4.04% decrease in payments (95% CI, -4.24% to 3.84%; p < 0.01) after enrolling in BPCI (USD 1138 decrease from a baseline of USD 19,799). The decrease in payments of PGP-run episodes was greater compared with hospital-run episodes. ORs for 90-day mortality and readmission remained unchanged after BPCI for PGP- and hospital-run BPCI programs. Patient age and mean Elixhauser comorbidity index did not change after BPCI for PGP-run, hospital-run, or overall BPCI episodes.

Conclusions Even when controlling for decreasing costs in traditional fee-for-service care, BPCI is associated with payment reduction with no change in adverse events, and this is not because of the selection of younger patients or those with fewer comorbidities. Furthermore, physician group practices were associated with greater payment reduction than hospital programs with no difference in readmission or mortality from baseline for either. Physicians may be a more logical group than hospitals to manage payment reduction in future healthcare reform.

Level of Evidence Level II, economic and decision analysis.

W. S. Murphy, Harvard Medical School, Harvard Business School, Boston, MA, USA

A. Siddiqi, Philadelphia College of Osteopathic Medicine, Philadelphia, PA, USA

T. Cheng, B. Lin, D. Terry, Archway Health Advisors LLC, Watertown, MA, USA

C. T. Talmo, New England Baptist Hospital, Boston, MA, USA

S. B. Murphy, New England Baptist Hospital, Tufts University School of Medicine, Boston, MA, USA

S. B. Murphy, Center for Computer Assisted and Reconstructive Surgery, New England Baptist Hospital, 125 Parker Hill Avenue, Suite 545, Boston, MA 02120, USA, email:

This work was conducted with support from Harvard Catalyst, The Harvard Clinical and Translational Science Center (BR; National Center for Research Resources and the National Center for Advancing Translational Sciences, National Institutes of Health Award UL1 TR001102), and financial contributions from Harvard University and its affiliated academic healthcare centers.

All ICMJE Conflict of Interest Forms for authors and Clinical Orthopaedics and Related Research® editors and board members are on file with the publication and can be viewed on request.

Clinical Orthopaedics and Related Research® neither advocates nor endorses the use of any treatment, drug, or device. Readers are encouraged to always seek additional information, including FDA approval status, of any drug or device before clinical use.

Each author certifies that his institution waived approval for the human protocol for this investigation and that all investigations were conducted in conformity with ethical principles of research.

This work was performed at The New England Baptist Hospital, Boston, MA, USA.

Received December 01, 2017

Accepted September 26, 2018

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Medical spending, including joint replacement, has consumed an increasing percentage of the gross domestic product in the United States over the past three decades. To reduce cost, the Centers for Medicare & Medicaid Services (CMS) launched an Innovation Center to investigate and study payment model alternatives to the traditional fee-for service model [9, 12-14, 16, 17, 20-22, 28, 29, 33]. In 2013, the CMS Innovation Center launched the Bundled Payment for Care Improvement (BPCI) program as one such alternative, in which physician group practices (PGPs) and hospital networks were eligible to apply as episode initiators, who assume comprehensive responsibility and financial risk during an episode of care. Preliminary BPCI reports for total joint arthroplasty (TJA) have shown promising improvement in cost-effectiveness with similar clinical outcomes [5, 14, 21, 29, 33].

As CMS transitions from fee-for-service payments to bundled payment programs such as BPCI, the optimal party to manage the bundled care episode is as of yet unknown. The BPCI program provided an opportunity to compare the payments and outcomes of bundles that were run by physicians (PGPs) and those that were run by hospitals to determine the optimal manager. Hospitals and PGPs have different structures and leadership; hospitals are generally led by individuals who are typically not directly involved in patient care, whereas PGPs are more likely to be managed by the treating physicians. In practice, hospital-initiated BPCI programs generally involved an increase in administrative overhead and control, including care navigators and standardized clinical pathways [16]. BPCI began accepting PGP-initiated episode initiators in the second enrollment period, a group that has grown to up to 50% of BPCI participants [4, 10, 11]. Because of the common concern that hospitals have less control over their patient populations than do PGPs, this study also aimed to control for the major confounding variables such as background payment trend, patient age, comorbidities, race, sex, and regional variation in procedure reimbursements to characterize if hospitals or PGPs are the optimal group to manage episodes of bundled care.

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Study Questions

(1) Is BPCI associated with lower 90-day payments, readmissions, or mortality for elective THA? (2) Is there a difference in 90-day payments, readmissions, or mortality between episodes initiated by PGPs and episodes initiated by hospitals for elective THA? (3) Is BPCI associated with reduced total Elixhauser comorbidity index or age for elective THA?

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Materials and Methods

Data Source

We performed a retrospective study to determine the clinical and economic results of hospital- and PGP-initiated episodes in BPCI. We obtained the CMS Limited Data Set (LDS) for fee-for-service claims from the CMS. This LDS database included all CMS expenditures except for Part B and durable medical equipment [7]. In the LDS data, each beneficiary is assigned an anonymous unique identifier that enables the attribution of CMS payments associated with each surgery episode through 90 days postoperatively. The data included all THAs performed on CMS-insured patients in the United States excluding Maryland from January 1, 2013, to March 31, 2016. Software applications (Archway Health Advisors, Watertown, MA, USA) were developed to identify each THA episode and aggregate associated expenditures from the LDS. Payments from the date of surgery through 90 days postoperatively were calculated, and each patient’s demographics, diagnosis codes, admission type (for example, elective versus emergency), readmissions, and mortality were identified for each episode. All incomplete data points (for example, episodes without an associated hospital, gender, race, or comorbidities) were excluded from the data analysis. Finally, the data analysis was restricted to elective THA without major comorbidity Diagnosis-Related Group (DRG) 470 episodes. After removing improperly coded episodes, there were 573,671 Medicare THA episodes over the study period. Of those THAs, 383,523 were elective procedures. Of those elective THAs, 371,586 were DRG 470, the final analysis population for this study. The total dollar amount analyzed for the THA episodes (elective hip DRG 470) from January 1, 2013, to March 31, 2016 was USD 7.1 billion.

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We calculated all Part A CMS payments in the LDS data from the inpatient stay through the 90th day after discharge. These payments were subcategorized to inpatient stay, home health, skilled nursing, inpatient rehabilitation facility, long-term care hospital, outpatient, and readmission payments. Part B CMS payments were not included. We adjusted these payments for inflation to first quarter US 2013 dollars according to CMS BPCI trend factors for DRG 470. Furthermore, to account for geographic variations in payments, we normalized payments for each CMS core-based statistical area and each type of payment category according to Medicare final rules for each year and payment type [35].

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Medical Comorbidities

We analyzed each episode for the comorbidity diagnosis codes provided by the CMS. The diagnosis codes were then categorized according to Elixhauser comorbidities using the Enhanced International Classification of Diseases (ICD), 9th Revision and Enhanced ICD, 10th Revision categorization and methodology from Quan et al. [31]. The Elixhauser comorbidity index is a validated measure for patient health status using administrative databases [18].

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BPCI Attribution

Each episode was matched to the operating surgeon and anchor hospital. Because BPCI participants did not all enroll simultaneously, we obtained the list of BPCI participants and start dates from the CMS website [3]. For hospital-initiated BPCI procedures, we categorized the episodes by anchor hospital CMS certification number. For PGP-initiated programs, the participating practices were identified and then crossreferenced with the CarePrecise EPGH database to determine the operating surgeon (determined by National Provider ID [NPI]) associated with each PGP [2]. This analysis resulted in obtaining NPIs for 74 of 98 (76%) PGP programs in BPCI. The PGP group consisted of 74 private practices and 44,662 THAs. The hospital-directed group consisted of 222 hospitals and 42,922 THAs (Fig. 1). Notably, our study period ended on March 31, 2016, and excluded patients treated in the Comprehensive Care for Joint Replacement Model that started on April 1, 2016 [6].

Fig. 1

Fig. 1

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Background Trend

We also analyzed the payments for all fee-for-service elective THA episodes outside of BPCI during the same period to calculate the effect of BPCI itself in addition to the overall background payments for THAs in the United States.

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The adjusted payments data were transformed by natural log and the top 0.01% of episodes by payments were removed to better approximate normality. A log-transformed linear regression model that controlled for age, sex, race, background trend, and comorbidities was used to compare payments for BPCI groups. A logistic regression model controlling for the same variables was used to compare readmission and mortality for BPCI groups. We calculated the effect of BPCI by comparing the payments, readmissions, and mortality of procedures performed by the same surgeons in the hospital and PGP groups from before and after the initiative was started. Statistical significance was calculated using the Student’s t-test associated with the linear regression and z test for odds ratios (ORs) associated with logistic regression. Regression models were created for 90-day readmission and mortality and adjusted for the same factors. Statistical differences were assessed from regression performed using Stata IC, Version 15 (StataCorp LLC, College Station, TX, USA). The level of significance was set at p < 0.05.

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Payments, Readmissions, and Mortality After BPCI

For the groups who participated in BPCI, there was a 4.44% (95% confidence interval [CI], -4.58% to -4.30%; p < 0.001) decrease in payments for all participants when controlling for confounding variables (age, race, gender, comorbidities, geography, and date of surgery); however, 90-day mortality and readmission were unchanged in elective DRG 470 THA episodes. For BPCI participants, this reflected an observed USD 1240 decrease from the base price of USD 18,800 per episode over the time of the study. The BPCI participants had lower payments at baseline than non-BPCI-participating groups by 3.09% (95% CI, -3.42% to -2.76%; p < 0.001) when controlling for age, race, gender, comorbidities, and date of surgery; after BPCI began, participating groups had lower payments than non-BPCI groups by 7.39% (95% CI, -7.85% to -6.94%; p < 0.001; Fig. 2).

Fig. 2

Fig. 2

When comparing post-BPCI episodes to pre-BPCI episodes for all groups enrolled in BPCI, 90-day readmission (odds ratio [OR], 0.98, 95% CI, 0.92–1.04; p = 0.50) and 90-day mortality (OR: 1.12, 95% CI, 0.88–1.41; p = 0.36) were no different after initiation of the program. Compared with non-BPCI episodes, BPCI participants were associated with an OR of 0.94 (95% CI, 0.91–0.97; p < 0.001) for 90-day readmission before beginning BPCI and an OR of 0.92 (95% CI, 0.87–0.97; p = 0.001) after BPCI initiation (Fig. 3). This indicates that BPCI participant episodes were less likely to be readmitted within 90 days than non-BPCI participants but that the OR of readmission did not change after they initiated BPCI. Relative to non-BPCI episodes, BPCI participants were associated with an OR of 0.71 (95% CI, 0.62–0.82; p < 0.001) for mortality in 90 days before the onset of BPCI episodes and an OR of 0.79 (95% CI, 0.65–0.97; p = 0.02) after initiation of BPCI. This indicates that BPCI participant episodes were less likely to end in mortality within 90 days than non-BPCI participants, but that the OR of mortality did not change after they initiated BPCI.

Fig. 3

Fig. 3

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Comparing Hospital-run versus PGP-run BPCI Episodes

When controlling for age, race, gender, comorbidities, geography, and date of surgery, PGP-initiated THA BPCI episodes were associated with a 4.81% decrease in 90-day payments (95% CI, -5.01% to -4.61%; p < 0.001), dropping from a baseline of USD 17,841 to USD 16,506 after BPCI (Fig. 4). Hospital BPCI THA episodes were associated with a 4.04% decrease in 90-day payments (95% CI, -4.24% to 3.84%; p < 0.01), dropping from a baseline of USD 19,799 to USD 18,661 after BPCI.

Fig. 4

Fig. 4

Neither PGP nor hospital programs demonstrated changes in 90-day readmissions after beginning BPCI. When comparing post-BPCI episodes to pre-BPCI episodes, 90-day readmission rate was no different for hospital participants (OR: 0.97, 95% CI, 0.90–1.06, p = 0.53) or PGP participants (OR: 0.99, 95% CI, 0.91–1.07, p = 0.72) after initiation of the BPCI program compared with baseline performance. PGP BPCI participant THA episodes had a 90-day readmission OR of 0.89 (95% CI, 0.83–0.95; p = 0.001) compared with non-BPCI episodes; pre-BPCI baseline for the same surgeons was 0.90 (95% CI, 0.86–0.95; p < 0.001). Hospital BPCI participant THA episodes were associated with a 90-day readmission OR compared with non-BPCI episodes of 0.95 (95% CI, 0.89–1.02; p = 0.16); pre-BPCI baseline for the same hospitals was 0.97 (95% CI, 0.93–1.02; p = 0.32).

Likewise, neither PGP nor hospital BPCI programs experienced changes in 90-day mortality rates compared with their baseline rate before BPCI initiation (Fig. 5). When comparing post-BPCI episodes to pre-BPCI episodes, the 90-day mortality rate was no different for hospitals (OR: 1.18, 95% CI, 0.86–1.63; p = 0.31) or PGPs (OR: 1.05, 95% CI, 0.76–1.46; p = 0.77) after initiation of the BPCI program compared with baseline performance. Compared with non-BPCI episodes, PGP BPCI participant THA episodes were associated with a 90-day mortality OR of 0.77 (95% CI, 0.59–1.02; p = 0.06) from a pre-BPCI baseline for the same surgeons of 0.73 (95% CI, 0.61–0.89; p = 0.001). Compared with non-BPCI episodes, hospital BPCI participant episodes were associated with a 90-day mortality OR of 0.81 (95% CI, 0.63–1.06; p = 0.13) from a pre-BPCI baseline of the same hospitals of 0.69 (95% CI, 0.57–0.84; p < 0.001).

Fig. 5

Fig. 5

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BPCI and Elixhauser Comorbidity Index and Age

Patients in BPCI episodes were the same age (mean age difference 0.02; 95% CI, -0.10 to 0.13; p = 0.76) and had a 0.02 lower Elixhauser comorbidity index than patients not in BPCI programs (95% CI, -0.04 to -0.01; p = 0.01). This was less than 1% of the mean Elixhauser comorbidity index of 2.10 (Fig. 6). Comparing before BPCI with during BPCI for BPCI episode initiators, the mean patient comorbidity index did not change (mean difference 0.00, 95% CI, -0.03–0.02; p = 0.73), nor did the mean age (mean difference 0.06, 95% CI, -0.08–0.19; p = 0.41).

Fig. 6

Fig. 6

Age did not change after beginning the BPCI program for PGP episode initiators (mean age difference 0.11, 95% CI, -0.08–0.29; p = 0.27) or hospital episode initiators (mean age difference 0.01; 95% CI, -0.18–0.20; p = 0.94). The Elixhauser comorbidity index did not change for PGP-run programs (mean change -0.03; 95% CI, -0.06–0.00; p = 0.09) or hospital-run programs (mean change 0.02, 95% CI, -0.01–0.05; p = 0.21).

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Since its inception, the BPCI initiative has been reported to reduce costs per episode of care while maintaining quality of care [14, 21, 29, 33]. Most studies showing cost savings in BPCI are from larger academic centers, which have reported increased administrative overhead to manage these episodes [16, 33]. To our knowledge, there are no prior studies of BPCI that control for confounding variables, including age, race, gender, comorbidities, geography, and date of surgery for each episode and account for the background trends of changing cost of concurrently performed fee-for-service THA episodes. In addition, we are also unaware of any prior studies that have evaluated these data for the entire country. Furthermore, there have been no previous comparisons assessing whether treating physicians or hospital systems are more effective at achieving the fundamental goals of healthcare reform. Our results are consistent with those of previous studies that show BPCI initiation is associated with lower payments without increased adverse complications [1, 11, 16, 20, 29, 33].

This study has limitations. First, this is a retrospective study of a national government data set. Therefore, the validity of the findings is based on the accuracy of the existing data set and the possibility of inaccurate coding cannot be excluded. Second, although confounding variables were adjusted for in statistical analyses, there may be selection bias still present not captured by the demographics and severity of the medical comorbidities. Although gender, race, and hospital zip code were considered, there is no information within the data set to specifically control for education level or socioeconomic status, for example. Third, patient-reported functional and other outcome measures were not used. Fourth, although most PGPs were catalogued, 24% of PGP initiators were not present in the database used. Fifth, a 90-day period was selected for analysis, whereas a shorter or longer period could have been chosen. However, a 90-day postoperative period is most common for BPCI Model 2, and Chen et al. [8] recently reported that a great proportion of surgery-related readmissions within 1 year of discharge is captured by a 90-day postoperative timeframe. Sixth, the data set included only Medicare Part A and excluded Part B expenditures; increased or decreased use of physician services for these surgeries was not analyzed [34]. Finally, the data used only included patients insured by Medicare; these findings may not be applicable to other patient populations. Nevertheless, Medicare patients account for nearly 60% of all TJAs [25, 26], and CMS continues to provide leadership in the development of alternative payment models and value-based care. Further studies should be performed in a non-Medicare population. Finally, because BPCI is an optional program, it is possible that the results of the groups that chose to participate are not generalizable to all programs at large.

This study demonstrated that BPCI was successful in lowering payments without changing 90-day rates of readmission or mortality. Although the savings percentages do not appear to be as large as have been previously reported [1, 9, 11, 13-16, 20, 21, 29, 33], they may be considered to be true savings as a result of BPCI because they exclude the contribution of the background trend of decreasing payments calculated for concurrent nonbundled episodes. The low percentage of mean savings, coupled with costs of implementation, increased administrative costs, and management fees for BPCI participants, highlights that BPCI is not necessarily a profitable endeavor for all participants. In addition, many participants may have experienced one-time savings in the transition into BPCI, calling into question the ability of similar bundled payment programs to continue achieving cost savings.

Although this study did not include a payments part analysis, it is clear that much of the reduction in BPCI payments may come from decreased use of skilled nursing facilities, which is the area of largest decrease across groups (Fig. 4). Studies from larger academic centers in bundled programs have shown that lower readmission rates, decreased hospital length of stay, and reduced postacute care facility discharge are keys to success and cost savings [12, 16, 29]. However, although readmission is a critical quality measure, because readmissions are low at baseline [15, 23, 24, 27], the potential savings associated with a decreased incidence of readmission is relatively minimal. Furthermore, this study of the United States overall shows unchanged readmission rates pre- and post-BPCI. By contrast, decreased use of postacute care facilities and decreased reliance on home care in favor of outpatient care or self-directed care have led to very large savings without an increased incidence of complications [15, 16, 30, 32, 34]. Our analysis shows a trend toward less reliance on postacute inpatient care in both BPCI and non-BPCI patient cohorts (Fig. 2).

PGP-initiated THA episodes were associated with lower episode payments at baseline and a greater decrease in payments in BPCI than hospital-initiated care, even when accounting for available potential confounding variables. Neither group showed changes in the outcomes of readmission or mortality after initiating BPCI. The greater savings of PGP-initiated versus hospital-initiated episodes raises questions about handing the reins of healthcare reform to hospital systems. Although the reasons for differing performance is outside the scope of this analysis, empowering the operating surgeon who has the longest direct relationship with the patient to manage the episode of care may be a more successful strategy than doing the same for a hospital administration.

This study showed no difference in the age of patients in hospital-run or PGP-run BPCI episodes compared with those of the baseline period. There was also no change in the mean Elixhauser comorbidity index of patients in the PGP-run or hospital-run episodes when controlling for all other variables. There has been concern that BPCI participants may be selecting for lower cost patients and referring patients with greater medical comorbidities to tertiary care centers or to nonparticipating providers [1, 11, 19]. However, the current study demonstrates no difference in age or medical comorbidities in PGP or hospital groups after beginning BPCI, indicating that there is no evidence of patient selection in these data.

This national analysis of elective THA episodes demonstrates that BPCI was associated with decreased payments compared with baseline without affecting the outcomes of readmission or mortality. The results also demonstrate that physician-initiated THA episodes are less costly at baseline and achieve greater reductions in payments after BPCI initiation compared with hospital-controlled programs. Additionally, there is no evidence that BPCI participants engage in patient selection regarding age or medical comorbidities and that there is a true cost savings associated with BPCI. Postacute care, including skilled nursing, appears to be a potential target for cost savings without compromise of outcomes. In light of these findings, bundled payment programs that exclude physician group practices from becoming episode initiators such as the Comprehensive Care for Joint Replacement Model may not achieve the highest possible savings [6]. With advanced BPCI on the horizon, it is likely that surgeon control of the bundled THA episodes will continue to outpace hospitals without increased patient risk in value-based care improvement.

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We thank Bernard Rosner PhD, for his valuable guidance throughout this analysis.

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