Using New Distribution Models to Prepare for Bundled Payment Models

Pratt Regional Medical Center realized approximately $264,000 in cost savings within six months.

By 2018, the Centers for Medicare & Medicaid Services (CMS) has a goal of tying 50 percent of fee-for-service payments to alternative payment models, such as the Bundled Payments for Care Improvement Initiative and Comprehensive Care for Joint Replacement (CJR). These alternative bundled-payment models incentivize physicians and hospitals to provide quality care at a reduced cost. CJR, in particular, holds hospitals financially responsible for the entire cost of patients’ episodes of care (90 days post-lower extremity joint replacement procedure) and includes both risk and potential shared savings.

In this interview, Ian Kovach, an orthopedic surgeon and fellow of the American Academy of Orthopedic Surgeons, discusses how Pratt Regional Medical Center, Pratt, Kan., approached the changing financial environment and worked on an alternative distribution model to achieve cost savings and CJR quality-of-care goals.

On the potential impact of CJR on hospitals like Pratt Regional Medical Center.  Kovach believes CJR has the potential to transform how hospitals and health systems approach episodes of care. “The future may be a bundled payment system where the amount of money available will have to be distributed in reimbursement between the hospitals, surgeons, anesthesia, and everybody involved,” Kovach says. “That presents both risk and opportunity for surgeons. If we’re on top of our game and can act proactively, there is a potential to really improve care and also capitalize on some of the changes.”

On addressing the challenges that CJR will bring.  Leaders at Pratt decided to investigate alternative distribution models as a strategy to cut expenses while maintaining or improving their services. “Our motivation for looking at a new distribution model really was the mounting external financial pressure to reduce cost,” Kovach says.

Under the new model design, Pratt has significantly reduced the use of implant sales representatives—which helps reduce expenses. Instead of relying on reps, this distribution model uses a proprietary technology that digitizes surgeon preferences for each type of procedure (e.g., instrument sequence, patient set-up) and provides staff with digital interactive training on the procedure steps. “It’s a model in which we don’t have sales representation available for standard routine primary cases and where we also have the hospital purchasing inventory up front, so there isn’t the consignment component,” Kovach says.

On considerations for evaluating different models. When selecting new distribution models, Pratt leaders had several considerations. One was safety. “We wanted to be sure that it was safe to go rep-less,” Kovach says. “It’s one thing to think about it, it’s another thing to actually implement it.” They sought out implants with excellent clinical results based on research.

Support was another key consideration. “We also wanted the availability of support whenever needed for training and for difficult cases, as well as a mechanism for monitoring the components that are being installed for compatibility,” Kovach says.

In addition, leaders at Pratt wanted a prompt and accurate restocking program and competitive pricing.

On staff training. Kovach says training should be a priority for any organization moving to a rep-less distribution model for implants. “It’s important that a partner demonstrate a commitment to training throughout the course of the engagement, not only up front,” he says. “In our case, we looked for a program that included thorough initial and recurrent training, with professional on-site training during the transition as well as the availability to go on-site for recurrent training.”

Kovach says flexibility was key to ensuring that staff received necessary training. For example, the vendor enabled scrub techs and key staff to participate in both interactive digital and hands-on training.

On maintaining access to sales representatives.  “Like training, access to reps was another important element for us,” Kovach says. “We understood that this new model would change reps’ roles, but we also wanted to know that they would be available for difficult cases when needed—a sort of ‘hybrid’ model that could deliver the cost savings we were after without sacrificing our ability to work with a rep when it made sense.”

On mitigating financial risk.  To help reduce their financial risks, leaders at Pratt can take advantage of a buyback program that allows them to readjust their inventory as demand for specific implants changes.

Kovach says the financial risk to the hospital is small compared with the gains they could realize from potential cost savings.

On realizing results.  “We did a lot of thoughtful planning before pursuing a new model, and it has paid off,” Kovach says. After six months, leaders at Pratt have realized approximately $264,000 in cost savings, attributable to the distribution model’s efficient transition and coverage, as well technician and nurse training and the scanning technology to drive replenishments.

Interviewed for this article:

Ian Kovach, MD, PhD, is an orthopedic surgeon at Pratt Regional Medical Center, Pratt, Kan.