Condition-based bundled payments – the path to orthopedic population health

By: Paul Jawin, JD, Vice President, Stryker Performance Solutions, and Rina Vertes, FSA, MAAA

June 20, 2019

One hears a lot these days about value-based payment and the goal of realizing value-based care on a population health basis, however there is a great deal of uncertainty about how and when to get there. Many believe that the current fee-for-service payment system creates inappropriate incentives and is financially unsustainable, which is why experiments in new payment models have generally had bi-partisan support in Congress. Changes in the political landscape, however, have caused confusion over the direction and pace of payment reform, especially those coming from the Centers for Medicare and Medicaid Services (CMS), the federal agency that administers the Medicare and Medicaid programs which has often led the way in payment reform efforts.


Obamacare: an expansion of value based care

Under the Obama administration, the passage of the Patient Protection and Affordable Care Act (ACA or Obamacare) ushered in a wave of experimentation with new payment models. These new payment models included voluntary programs like Bundled Payment for Care Improvement (BPCI), Medicare Shared Savings Program (MSSP), and other types of Accountable Care Organizations (ACOs) as well as mandatory programs like the Comprehensive Care for Joint Replacement (CJR) and the Episode Payment Model (EPM) programs.

This trend reversed a bit during the early Trump administration when then - Secretary of the Department of Health and Human Services (HHS) Tom Price, an opponent of mandatory payment reform programs, cancelled the mandatory EPM Rule and made the mandatory CJR Program voluntary in half of the markets it had been implemented in. The trend seems to be tilting back towards mandatory programs under the current Secretary of HHS, Alex Azar, who made these remarks at the September 6, 2018 meeting of the Physician-Focused Payment Model Technical Advisory Committee in Washington, D.C. when announcing major modifications to the MSSP ACO program called Pathways to Success that requires ACOs to take on more downside risk:

"In some cases, as I've said before, that is going to mean mandatory models from CMMI and other mandatory reforms. Requiring participation can be necessary to determine whether a model really works, but it may also be necessary to meet what we see as an urgent need for reform," 1


Recent new steps by cms towards value-based care

While the value-based programs launched or announced by CMS since these remarks, including the BPCI-Advanced Program (launched in October 2018) and the Value-Based Insurance Design (model announced in January 2019), have all been voluntary, CMS recently stepped on the payment reform gas pedal by making two additional announcements. On February 27, 2019 CMS informed participants in BPCI-Advanced by email that it was eliminating the cap on gainsharing payments to physicians in the program. This cap has been one of the most important safeguards that permitted gainsharing payments to physicians which might otherwise violate provisions of the Stark Law. The second announcement by CMS (following earlier calls for public comment by CMS and the  HHS Office of Inspector General) was that it was considering certain revisions to the Stark Law and the Anti-Kickback Statute which, if adopted, would aim to reduce barriers to value based care. While the details of these revisions have not yet been made public by CMS, these two announcements may herald a quickening of the pace of payment reform under the Trump administration.

These policy changes were reinforced by recent comments made by CMMI staff. On June 18, 2019, at the Ninth Annual Bundled Payment Summit in Washington, D.C., Adam Boehler, Senior Advisor to the Secretary of HSS, and Christina S. Ritter, PhD, Director, Patient Care Models Group, in separate presentations, discussed CMS’ commitment to moving from the current value based models that still have a fee for service foundation (like BPCI-A and most of the MSSP and ACO programs that continue to pay fee for service claims and retrospectively reconcile those claims to budgets) to  models that no longer include a fee for service component. They both indicated that a new type of bundle, based on a clinical condition rather than an acute event, that incentivized specialists to determine the “appropriateness of the surgical procedure” was needed to move towards a true population health model. Mr. Boehler stated that CMS preferred to utilize voluntary models but that mandatory models may be necessary.


Finding the path to population health

It seems clear that, despite the change in Administrations and the battles that continue to rage over ACA insurance coverage issues, the trend towards expanding value-based payment reform programs will continue, with the goal of achieving improved quality of population health while reducing costs. In view of this, if you are a payer or provider that is not already participating in value-based payment models, it would be wise to learn more about them and to gain experience with them. It is important to keep in mind, however, that there are serious legal considerations to participate in these new payment models and they should be carefully reviewed by legal counsel to ensure they are compliant. There are also financial considerations associated with assuming and managing risk. Organizations that do not have experience in these matters should find a partner or service provider who does.
There have been two structures through which most providers and payers have gained experience in payment reform programs. One is the bundled payment structure, where the payer attributes an episode to the responsible party and establishes a budget amount (Target Price) for all medical services provided during an “episode of care” (for example a hip or knee replacement).  Typically, the episode starts when the patient is admitted to the hospital or has surgery in an outpatient department and extends for 30 – 90 days after discharge from the hospital or the outpatient surgery.  The payment model defines the party who is bearing the financial risk (which could be physicians, hospitals, third parties, or all of them).  If the claims paid by the payer for the services provided during the episode of care are lower than the Target Price, and if quality standards are maintained, the party taking the risk can keep the savings and share them with the participating providers. If claims paid exceed the Target Price, the party taking the risk must reimburse the payer for this loss and can also share this risk with participating providers.

The second structure is an ACO, where a party takes financial and performance risk for all health care services provided to an entire population over a year rather than just for an episode of care. This is one of a number of “population health” models. A per-member-per-year (PMPY) budget amount is determined, and if the care of the population for the year is delivered at a lower cost, and quality standards are maintained or improved, the party taking the risk can keep some or all the savings and share them with participating providers. If the cost of care exceeds the budget amount, the party taking the risk pays the loss and can share this risk with participating providers.

ACOs and bundled payment programs have strengths and weaknesses. Patients are usually attributed to ACOs based on their primary care physician (PCP) relationship and many of the quality measures are primary care focused. Due to the PCP focus, ACOs can be effective at engaging and incentivizing PCPs but do not effectively focus on engaging and incentivizing specialists. ACOs use enhanced infrastructure and technology to identify and manage at-risk patients while also focusing on prevention and wellness for the overall population. They employ improved care coordination techniques to detect health care issues early and to direct resources with the goal of keeping conditions from progressing and resulting in an inpatient admission for complications or surgery where care is generally provided by specialists. Eliminating avoidable hospitalizations and procedures improves the quality of care while greatly reducing costs. Because an ACO manages the health of a large population, it deals with a very complex and diverse set of patients, conditions and provider partners. To successfully manage all of this, ACOs employ sophisticated data analytics, care management and patient engagement platforms and personnel, which require large expenditures of time, energy and resources.

For patients requiring specialty or surgical care, specialists, such as orthopedic surgeons, have the greatest ability to improve quality and reduce costs through care re-design. ACOs generally do not engage and incentivize specialists and often miss this opportunity to more effectively manage these acute episodes of care. Bundled payment programs are completely compatible with population-based programs such as ACOs, which can and should create their own bundled payment programs to incentivize specialists and better manage acute episodes of care but which, unfortunately, rarely do.


Why condition based bundled payments may be the best path to orthopedic population health

Since bundled payment episodes are typically triggered by an inpatient admission as well as some outpatient surgeries, and PCPs generally do not have a major role in providing care during these acute episodes, bundled payment structures typically focus on engaging and incentivizing the specialists, not the PCPs. If structured properly, bundled payment programs can be very effective at incentivizing specialists to improve quality and reduce costs once the decision to operate is made or the inpatient admission for treatment occurs. Bundled payment programs, however, miss the greater ACO-like opportunity to determine if the surgery or admission is avoidable in the first place. Condition-based bundled payment models are an opportunity to engage specialists (and potentially PCPs) to capture this greater opportunity to manage both the appropriateness of an acute episode from occurring at all and, if it does occur, to manage the efficiency and quality of that episode.

Rather than being triggered by a decision to operate or an inpatient admission, a condition-based bundle could be triggered earlier by the first visit to a specialist for a clinical condition, such as a visit to an orthopedic surgeon for back pain or osteoarthritis. A Target Price for a specified period like one year would be established based on the historical claims cost for patients with similar clinical conditions. If costs are lower than the Target Price, while quality is maintained, the party taking the risk could keep some or all the savings and share them with participating providers. If the cost of care exceeds the Target Price, the party taking the risk pays the loss and could share the risk with participating providers.

In a condition-based bundled payment, the specialist is incentivized to consider other medically appropriate, less invasive and less costly treatments that could avoid the need for a hospitalization or surgery. The savings achieved, particularly if an admission or surgery is avoided, could be far greater than savings achieved under traditional bundled payment programs and could be sufficient to incentivize both the PCP and the specialist, encouraging the PCP to refer to the specialist at an earlier date when the condition may be easier to treat. It also encourages PCPs to more effectively refer their patients to specialists who are proven to be of higher quality and efficiency. This strategy may be especially useful for spinal fusion episodes of care, where studies have shown that less invasive interventions may be as effective as more  expensive surgical procedures2 and even for joint replacements, where a study showed that one-third of joint replacement surgeries were inappropriate.3

As bundled payment programs continue to spread, new models will be developed and tested. It is interesting to note that when it proposed the EPM Rule, CMS specifically asked for comments on condition-based bundled payments:

“…we sought comment on model design features for potential future condition-specific episode payment models that could focus on an acute event or procedure or longer-term care management, including other models for beneficiaries with CAD that may differ from the design of the EPMs proposed in the proposed rule (81 FR 50794). We believe such future models may have the potential to be Advanced APMs that emphasize outpatient care and, like the proposed AMI and CABG models, could incentivize the alignment of physicians and other eligible professionals participating in the Advanced APM through accountability for the costs and quality of care. Such condition-specific episode payment models may provide for a transition from hospital-led EPMs to physician-led accountability for episode quality and costs, especially given the importance of care management over long periods of time for beneficiaries with many chronic conditions.”4

While the goal of value-based initiatives is overall management of population health, as seen in ACO models, it can be intimidating and overwhelming for an organization to jump into the complexities of those models in one fell swoop. It is common for organizations to start their value-based payment journey with bundled payment programs, which are more focused, less complex, and which require less infrastructure and fewer resources to manage.  It is not always clear, however, how to evolve from traditional bundled payments to a full population health approach, especially when the ACO models require a bigger commitment in terms of infrastructure, time, energy and resources. Condition-based bundles present an efficient path that bridges this gap in orthopedic population health.

A recent example of a condition-based bundled payment arrangement is underway at Dell Medical School at The University of Texas, Austin. Progressive leaders there, including Drs. Mark McClellan, Kevin Bozic, and John P. Andrawis, developed a total joint replacement condition-based bundled payment model that has improved quality and reduced costs.5

Because of the high volumes and the high variation in cost, two substantial opportunities available in orthopedic value-based care include the opportunity to reduce post-acute care and readmissions in total joint replacements (which have the potential to be realized in bundled payment programs) and the opportunity to utilize less invasive interventions in spinal and total joint replacement treatment (which can be realized in a condition-based bundled payment program). The same infrastructure can be used to manage condition-based bundles as is used for traditional bundled payments and  should not require a significantly  greater level of time, energy and resources. Once these two big opportunities are realized and the organization has experience with and success in value-based care, decisions can be made regarding what additional opportunities should be prioritized on the path to broader population health and the infrastructure and commitment needed to get there. If substantial savings are realized through these “quick wins”, it can encourage the organization and payers to take the next steps down the path to broader population health. This step-wise approach may be the most efficient path to orthopedic population health.   

This material is provided for guidance and/or illustrative purposes only and should not be construed as a guarantee to future results or a substitution for legal advice and/or medical advice from a healthcare provider.  Stryker Performance Solutions does not practice medicine and assumes no responsibility for the administration of patient care.
©2019 Stryker Performance Solutions, LLC.


Paul Jawin, JD, Vice President, leads Stryker Performance Solutions’ payment reform and physician alignment initiatives. Paul brings more than 35 years of business, legal, financial and capital markets experience to his role developing physician alignment and payment reform programs that help caregivers collaborate to deliver better patient care at lower costs. As co-founder of Comprehensive Care Solutions (acquired by Stryker Performance Solutions in 2012), he has helped many physician organizations and health systems align and turn reform into opportunity by utilizing new payment and delivery structures, including Accountable Care Organizations (ACOs) and bundled payments. Paul also works with hospitals and physicians to create organizational structures, such as Clinically Integrated Networks (CINs), and deploy strategies, such as joint ventures, gainsharing and co-management, to align their interests as they strive to achieve the triple aim of health reform: better health, better patient care and lower costs. Paul is a regular speaker at industry conferences and a frequent contributor of articles to industry publications. Paul also co-founded Secured Independence, Inc. (acquired by Matria Healthcare, Inc.), the first long-term care insurance risk management firm focused on pre-claim risk mitigation, where he served as Senior Vice President and General Counsel. Earlier in his career, Paul practiced law in New York City for ten years and has held senior executive positions—including General Counsel, Chief Financial Officer, Chief Operating Officer, and member of the Board of Directors—in public and private companies involved in real estate and senior housing.     


Rina Vertes, FSA, MAAA has over 30 years of experience working with health insurance companies, providers, and other health care vendors.     
Until 2011, Rina was the Chief Actuary of BCBSMA, where she worked extensively on the implementation of and risk management response to MA health care reform.  She was appointed to serve on the 2006 Special Commission to Study the Impact of the Merged Individual and Small Group Markets.  She co-led the development and implementation of the Alternative Quality Contract, a provider payment model incorporating risk adjusted global payment and performance based incentives, considered a prototype for recent ACO models. Rina was the CFO of Minuteman Health, the only member-governed health plan in MA, where she was part of the leadership team that successfully developed and launched the plans in MA and NH. Rina was appointed by Governor Charlie Baker to serve on the Board of the Massachusetts Health Connector, the state based health insurance exchange.
Currently, Rina is the President of Marjos Business Consulting, LLC.  As a consultant, Rina provides actuarial and strategic expertise to clients so that they can manage risk and strategically respond to CMS and private sector payment reform initiatives including Bundled Payments, ACOs, and other value based relationships.





  1. Becker’s Hospital Review: “Azar: Advancing value-based agenda 'is going to mean mandatory models'”, September 11, 2018
  2. Back Surgery: Too Many, Too Costly and Too Ineffective: to your Health, June, 2011.
  3. “Using a Validated Algorithm to Judge the Appropriateness of Total Knee Arthroplasty in the United States: A Multi-Center Longitudinal Cohort Study”, Daniel L. Riddle, PT, PhD, FAPTA, William A. Jiranek, MD, and Curtis W. Hayes, MD,  Arthritis Rheumatol. 2014 Aug; 66(8): 2134–2143.EPM Final Rule, Section III (3)(b) (Page 164).
  4. “Bundled Payments Are Moving Upstream”: John P. Andrawis, MD, MBA, Mark McClellan, MD, PhD & Kevin J. Bozic, MD, MBA, NEJM Catalyst, February 26, 2019.