An Example of “Value” in Joint Replacements

"Value" is defined as the health outcomes achieved for patients relative to the costs of achieving them. It is the only goal that can guide strategy in health care, the only “true north” that can resolve the difficult choices organizations will need to take.

Michael Porter, Ph,D, and Thomas H. Lee, MD, “Why Strategy Matters Now,” New England Journal of Medicine, April 30, 2015

One of the functions of this blog is to make the abstract concrete by using examples. Translating the meaning of “value” in clinical affairs to a health care reality is such a function.

Reducing costs and improving outcomes of joint replacements in hospitals is such an example. How this can be done has been shown at Baptist Health System in San Antonio, which owns 5 hospitals. The system saved over $1 million in a year for hip and knee replacements by bundling Medicare payments into one reduced 3% payment covering everything from physician fees, to nursing, to anesthesiology fees, to post-op nursing home care to readmissions, to anything that happened within a month after surgery. If savings occurred, the hospital system and the orthopedic surgeons shared the savings. For a surgeon doing 35 procedures a month, this amounted to $21,000("An ObamaCare Payment Reform Success Story- One Health System, Two Procedures," Kaiser Health News, April 30, 2015).

These savings were achieved through a series of measures: standardizing the cost of artificial joint devices by selecting one joint device, lowering costs of blood thinning drugs and compression stockings, have post-op therapy performed at home rather than in nursing homes, getting patients active quicker, reducing use of physical therapists.

The results of these combined efforts, planned at joint meetings of hospital executives, nurses, and physicians – was shorter hospital stays, reduced use of nursing facilities, increased savings for Medicare, and profit-incentives through shared savings for the hospital system and orthopedic surgeons. There were losers as well – nursing facilities and physical therapists.

This is an example of what can be done through the combined efforts of a hospital organization and its providers. According to Michael Porter of Harvard Business School and Thomas Lee of Harvard Medical School, “A provider organization decides that it will compete for orthopedic patient volume by creating a tightly organized team(integrated practice unit) to deliver care in a lower-cost setting and by negotiating bundled-payment contracts with major employers and payers.” These payers and employers may be Medicare, insurers, or self-funded employers.