Circus of Values

A Response to Matthew Holt's "So What Can We Do About Health Care Costs?"

Today’s thought-provoking piece by Matthew Holt presents four principles for reducing healthcare costs. Being the curmudgeon that he is, Holt doesn't think any are imminent or feasible the way things are -- but I disagree.

The four principles are:

• Cut prices

• Cut overall use of services

• Reduce only unnecessary services

• Replace higher priced services with lower priced ones

The reality is that we can and have achieved all four in joint replacement through bundled payment arrangements -- and we can continue to expand this further through condition-specific bundles (rather than surgical episode bundles). Creating truly integrated MSK-centered care delivery networks that align primary care and specialists will extend these gains further while reducing fragmentation. Some of this work is already being done, it just needs wider scale, better collaboration between payers and care providers, and sustainable models that don’t result in a race to the bottom. Here’s my thoughts on the 4 Principles.

Principle #1: Cut Prices

Bundled payments and migration of joint replacements to ASCs have "cut prices" while shifting rewards to those delivering care. Multiple studies — including this one — have shown reduction in costs associated with hip and knee replacement through CMS’ Bundled Payment for Care Improvement (BPCI) initiative. Furthermore, surgeon-led programs tend to outperform hospital/health system-led programs. Unfortunately, the BPCI program’s downward adjustment of target prices has led many to drop out of the program, even those who have successfully lowered prices and improved outcomes. No one is going to stay in a program that makes them victims of their own successes. BPCI employs crude to non-existent risk-stratification methods and makes surgeons responsible for healthcare related costs not tied to the procedure and largely out of their control. (Some of my biggest losses in the program included a patient treated for head and neck cancer in the bundle period and another who resumed expensive treatment for their inflammatory arthritis).

BPCI (and its cousin CJR) are being sunset by CMS and will likely be replaced by another program — perhaps the recently announced “Making Care Primary” Initiative. Such programs can successfully reduce costs without restricting access or leading to worse outcomes. Joint replacement surgeons have gone to great lengths to work with CMS on designing sustainable programs to little avail. Despite constant handwringing about value-based MSK care, Orthopedic Surgeons (particularly joint replacement specialists) have been on the forefront of VBC (as much or more than just about any other specialty). Frustration is mounting among surgeons that CMS and CMMI aren’t collaborating in good faith and that alternative paths must be sought.

Yes, price and cost aren’t exactly the same thing. And, yes, BPCI and CJR only cover patients in Traditional Medicare. To that end, there is a growing movement to bring transparency, reproducibility, and predictability to arthritis and joint replacement care through direct contracting, negotiated pricing, and bundled arrangements outside the Medicare population. Care navigators (Transcarent, Carrum, and others) and the Center of Excellence model are two such attempts. A host of VC-backed companies have cropped up with the promise to help employers steer patients to curated networks of MSK providers. Similarly, the COE model connects large employers with “vetted” centers (usually AMCs) who ostensibly deliver high-quality, evidence-based care at negotiated prices. Anecdotally, there are some issues. Care navigators struggle to produce volumes of patients that make it worthwhile for providers to go through their complex onboarding processes. (I have also heard whispers of poor patient vetting mechanisms, slow payments, and selecting for the cheapest rather than the best care). The COE model got a big lift from a landmark HBR article highlighting improved outcomes and reduced costs for Walmart and other employers. The buried lead here is that much of the cost savings come from the decision not to do surgery — the surgical prices at these centers are often higher than those in the community. In fact, AMCs are generally thought to be higher cost than community hospitals. Keeping more patients in the community alone could save money. (Whispers here are that patients are being subject to chart reviews and denials by COEs without an in-person evaluation). I have written more about the shortcomings of the COE model before and won’t deep dive here.

I’m more bullish on some other less well-known efforts. Several of my surgeon colleagues are pioneering transparent bundles and concierge level experience without some off the fluff. My good friend Moby Parsons and his partner Tom King developed the A.V.A.T.A.R. program in New England with some learnings from Steve Lucey and his Valere program in the Carolinas. Twin Cities Orthopedics offers EXCEL, a transparent, concierge-level offering for hip, knee, and spine care. All three list prices on their websites and all three are more than willing to work with surgeons to set up similar programs. The biggest barrier to these programs remains getting in front of payers and getting payers to take them seriously — something organizations like the Healthcare Transformation Alliance may be able to help with. I’m also excited about the work being done by Mishe and Commons Clinic in this arena. (Full disclosure, I’m an investor in both and receive stock options for advising Mishe). The point here is that reducing prices in healthcare is possible, and it’s being done in MSK. I suspect these efforts will continue to gain traction, especially given this just published study that suggests reimbursement for joint replacements is on a path to dip below minimum wage by 2030 (h/t to Nick Sukay).

[Editorial note: This study also debunks Holt’s assertion that Congress always backs down on real cuts. The issue here is lumping hospitals and doctors into the same “provider” category. While hospital reimbursement has gone up 70% over the last 20 years, Medicare physician pay has gone down 26% when adjusted for inflation].

Principle #2: Cut use of Overall Services

Capitated and bundled models by definition incentivize cost containment and reduction in use of services. (Of course, one of the criticisms has been that this might lead to withholding of necessary treatment or delay in definitive care.) Orthopedic Surgeons cutting use of overall services? To quote noted philosopher Ralph Wiggum, that’s unpossible. But that’s exactly how many surgeons achieve success in bundled payment arrangements. In the BPCI program, the greatest cost savings were gained by significantly reducing use of post-acute care services — sending patients home instead of to nursing facilities and rehabs. Studies have shown that direct discharge home is not only safe for most patients, but it also leads to fewer readmissions and lower complication rates. Win-win. Success in these programs requires tight care coordination and optimization of patient health. In joint replacement, this has led to the hiring of nurse navigators — an invaluable resource for patients who help reduce ER visits and complications through increased “touches.” Similarly, optimizing patient health through weight loss, smoking cessation, diabetes management, and mental health support prior to surgery pays significant dividends, clinical and financial, in the long run. Put simply, spending a little money upstream can have a significant impact in reducing use of services downstream. Condition-specific bundles tied to a diagnosis, not a surgical procedure, can lead to a broader reduction in services that fail to provide value.

As mentioned in Holt’s article, technologies like RPM and RTM may also help here. (Another disclosure, I’m an investor and advisor to Healent, a company providing such services). CMS’ support of reimbursement codes for MSK RPM/RTM will help pave the way for broader adoption. Patient engagement, education, and asynchronous monitoring are all critical facets of value-based MSK treatment. It should be no surprise that the companies mentioned above (AVATAR, Valere, etc.) employ tech platforms and/or concierge-like experiences to deliver value. This value can be difficult to measure directly but is absolutely felt by patients. Leveraging tech is a great way to reduce utilization of services. We just aren’t quite there yet for a variety of reasons. Proving ROI in a world where FFS still dominates can be difficult for RPM/RTM companies. Technology must integrate seamlessly into workflows. More data needs to be gathered on the impact of these platforms. The barrier to entry needs to be lowered for patients. RPM/RTM grifters offering little outside of code-bilking threaten the whole thing and must be eliminated.

Principle #3: Reduce Only Unnecessary Services

I don’t necessarily agree with Holt’s assertion that tech can reduce services by replacing doctors. There are a number of digital health companies trying to use technology as a gatekeeper to MSK services. In certain situations, this may make sense. The question remains: who is most qualified to oversee this care? Digital MSK companies should be subject to the same quality measures, risk-bearing, and outcomes reporting as Orthopedic Surgeons who engage in VBC. They should also collaborate with surgeons. Together, health tech and traditional healthcare can reduce service utilization, improve cost and quality, and drive engagement while making sure the patient gets appropriate, timely care.

What constitutes “unnecessary services” is also a matter of perspective. Holt’s own experience with back pain highlights this conundrum. We all want evidence-based treatment. The problem is that the evidence is never quite as black and white as we would like. Low value is not the same as no value care. Personalization should be the goal.

There are certainly outliers whose utilization walks the line between aggressive and abusive and, as Holt points out, there’s outright fraud too. This is a tougher nut to crack without more oversight and nuance — two things the government struggles with. Payers use prior authorization, utilization management, and peer-to-peer calls to, in theory, reduce unnecessary services. But these mechanisms come with their own perverse incentives not necessarily aligned with patients’ best interests. The approach to “unnecessary treatment” needs refinement and sophistication. But I suspect high quality providers intrinsically avoid low value treatment as a byproduct of superior processes and a willingness to embrace transparency.

Principle #4: Replace Higher Priced Services with Lower Priced Ones

Much of this is touched upon in the sections above. Again, shifting MSK care to the outpatient setting/ASCs can save tens of thousands of dollars in facility fees alone. Outpatient joint replacement is safe for most patients, and improved optimization protocols and processes will expand this cohort. Replacing doctors with tech has its limits and may lead to worse outcomes, unnecessary delay in treatment, and overall higher costs. While allowing physicians to “practice at the top of their license” is a noble goal, the intentions here may not be entirely pure. Value = quality/cost. Without knowing what the numerator is, the denominator lacks critical context. We simply don’t have enough data on quality, particularly in MSK, to know whether these lower priced services are delivering appropriate value — apparent cost reductions aside. The way forward involves creating integrated MSK care systems capable of parsing the appropriateness and timing of low v. high priced services. The goal here shouldn’t be replacing one form of services with another, it should be to make sure the right sequence is followed. A patient with end stage knee arthritis who can barely walk doesn’t need virtual PT and asynchronous messages from a health coach. Conversely, a patient with early arthritis who has had no prior treatment doesn’t need to see an Orthopedic Surgeon (especially one that may offer a low yield procedure like knee arthroscopy). The principle here should be integration, not replacement.

In summary, while I agree with Matthew Holt’s 4 principles for reducing healthcare costs, I disagree that they’re unachievable. In fact, I’d argue we have already achieved all four (in pockets) — in MSK of all specialties. Furthermore, I’d argue that MSK, particularly arthritis and joint replacement care, is an excellent place to start and continue to build. Demand is high (and going higher), costs are high (and going higher), and opportunities for improvement are many (and becoming…many-er). If we want it, it’s there for the taking. The movement is growing with more docs and professional societies getting on board, a plethora of digital MSK companies in need of differentiation and growth, employers who are desperate to reduce MSK spend, and patients who need access to high quality, engaging, transparent treatment. CMS/CMMI and commercial payers getting behind these efforts and coming to the table for two-sided collaboration would be the rocket fuel necessary for sustained progress. Even Matthew Holt would have to smile at that.