A significant study published in the JAMA Internal Medicine at the beginning of the year demonstrates how a health system effectively reduced episodic expenditures through bundled payments by 20 percent. Notwithstanding the rising national costs of joint replacements, Baptist Health System (BHS) saved $20 million over seven years with bundled payments.

The study, from the Perelman School of Medicine at the University of Pennsylvania, co-authored by Dr. Ezekiel Emanuel, combines hospital and Medicare data to evaluate the costs and care quality for nearly 4,000 hip and knee replacement episodes from July 2008 to June 2015. The five-hospital Baptist Health System in San Antonio, Texas saved more than $5,000 per episode, or $20 million in total savings. BHS also improved outcomes during the study by reducing readmissions, emergency department visits, and inpatient prolonged lengths of stay.

Remedy Partners has achieved similar results in a shorter period of time with engaged, aligned, and motivated provider partners across the country. Our experience has shown that hospitals and physician group practices can replicate this success by developing local, focused networks of cooperating providers and committing to optimized workflows.

Align and Empower Physician Leaders

The program succeeded because of provider alignment. By sharing internal hospital data and rich claims data with providers, BHS provided the key tool to understanding the result of variability in workflows. With the right incentives and data, providers agreed to the key interventions for improving efficiency and outcomes. The efforts ventured beyond the operating room – into internal medicine, case management, and rehab departments – cultivating a shared purpose for the bundled payment program.

Furthermore, BHS leveraged a powerful tool, gainsharing, that is generally prohibited outside of bundled payments. Gainsharing allows one provider to share its financial incentives with other providers. For every $1 that a surgeon is paid, they are the source of $4.35 for a hospital, therefore, aligning a surgeon’s financial incentives with the hospital can amplify cost saving. In this case, BHS reduced internal hospital costs by nearly $2,000 per episode—largely driven by reductions in implant costs.

Develop Focused Networks for Patients Outside the Hospital Setting

The article highlights the importance of partnerships with post-acute providers. Efficiency in care during the patients’ recovery requires the right relationships with providers outside of the hospital setting. Bundled payments provide the incentive to coordinate care for patients—BHS reduced post-acute spending by $2,443 per episode.

BHS created an effective, focused network of post-acute providers. Selecting a high-performing post-acute provider should be driven by quantitative and qualitative inputs. Sharing ongoing performance data and setting expectations with post-acute providers is critical to maintaining an effective network.

Bundled payments are spreading beyond Medicare, but the lessons and systems set up for these models are applicable to other patient populations. At a time when healthcare spending is rapidly rising, bundled payments may prove an effective remedy.