Preparing for alternative payment models

By Jonathan Friedman, MBA, CPC, MGMA member
April 1, 2016
Body of Knowledge Domain(s): Financial Management

Last summer the leadership at Memorial Healthcare, a 150-bed rural hospital in Owosso, Mich., started talking about alternative payment models. Several events prompted the discussions including the Perioperative Surgical Home Summit, Newport Beach, Calif., and the Comprehensive Care for Joint Replacement Model that was introduced by the Centers for Medicare & Medicaid Services (CMS). Unlike other programs, the model was not voluntary. Blue Cross & Blue Shield of Michigan already had founded the Michigan Arthroplasty Registry Collaborative Quality Initiative (MARCQI) in 2011 with a network of 51 hospitals and surgery centers dedicated to improving the quality of care for patients undergoing hip and knee replacement procedures in Michigan. And then a few months later, CMS introduced its alternative payment model program.

In a discussion with Michael Schmidt, DO, vice chief of staff and chair of the department of surgery, Memorial Healthcare, about payment reform initiatives, we agreed that if we did not prepare for these programs the institution could be financially impaired and unable to meet patient satisfaction scores. 

The conversation soon expanded to discuss preparations for bundled payments, and one idea was to develop a patient-centered, physician-led multidisciplinary and team-based system of coordinated care that guides a patient through the entire surgical experience. The goal was to reduce variability in perioperative care, address coordination, improve clinical outcomes and lower surgical costs, and we agreed that the way to accomplish it was to create a perioperative surgical home (PSH). 

Making it work 

We appointed Joseph Kochan, MD, chief of anesthesiology, Memorial Healthcare, as head of the perioperative team to coordinate and manage all aspects of care from the minute the surgeon decides to operate until 30 days post-discharge. 

Throughout the process the ability to obtain the support of hospital leadership as well as surgeon(s) and anesthesiologists was imperative. It included the following steps:

1.    Education about the PSH: Kochan and I searched the Internet for additional materials and spoke with anesthesiologists with institutions that have established PSHs. The University of California, Irvine (UC Irvine) showed these results after implementing a PSH:

  • A decrease in average length of stay for hip replacements compared with the national average from 3.9 to 2.7 days 
  • A decrease in knee replacements from  3.3 to 2.6 days 
  • A decrease in readmissions within 30 days for total hips from 4.6% to 0% 
  • A decrease in readmissions within 30 days for total knees from 4.2% to 1.1%

The PSH at St. Francis Hospital in New York showed the following results1:

  • A decrease in average length of stay for total hips and knees from 3.4 to 3.1 days 
  • A decrease in complications from 2.8% to 1.7%
  • A decrease in blood transfusions from 10.4% to 4.8% 
  • A decrease in readmissions within 30 days from 4.4% to 1.8%

After reviewing these results, Kochan agreed that the PSH presented an opportunity for the anesthesia team to lead Memorial and prepare for alternate payment models.

2.     Teamwork: We recognized the need for a physician advocate, who would implement the PSH. Schmidt, who is also a member of the board of trustees, agreed with the need for change after seeing the PSH results data from UC Irvine and St. Francis Hospital. He also agreed with the need for a surgeon and anesthesiologist to serve as leaders to drive this change. As a result, Schmidt convened monthly meetings, had his office manager attend our work group meetings, spoke with Brian Long, chief executive officer and Tim Susterich, chief financial officer, about the benefits of the PSH, and talked with physicians in his orthopedic group about following care protocols we discussed at our meetings.

Once the leadership was identified and engaged we formed a steering committee to oversee PSH organization and implementation. We chose the following people to serve on the team because of their proven leadership at the institution and experience working with quality improvement programs: 

  • Jim Barb, vice president, Performance Improvement and Quality
  • Kathy Roberts, RN, BA, director of patient care services 
  • James Nemeth, RN, MBA, FACHE, chief nursing officer

Roberts was the clinical person on the ground, who talked with the nursing and other clinical staff about following protocols established by the PSH, tracking statistics through Press Ganey and the institution’s quality and financial programs, and reporting results. She also worked with the work group and steering committee that were accountable for ensuring staff was adhering to protocols, guidelines and changes to the process for successful implementation of the PSH policies and procedures on a daily basis.  

We focused on specific and measurable outcomes, such as reducing unnecessary tests, complications, readmissions and length of stay, and were able to report that we did not incur any additional expense for our work.


A number of issues and concerns needed to be addressed. Previously the institution had a surgical governance committee that did not succeed due to disagreements about clinical protocols, an inability to agree on goals, differences of opinion about who would drive initiatives and other factors. The cost and use of staff time was also a concern for executive leadership based on this experience. Another issue was that most of the successful examples of PSH involved academic centers with more re-sources and involved sophisticated applications. A third obstacle was convincing staff throughout the hospital that this was a worthwhile and necessary exercise. The cost-saving initiatives are expected to save tens of thousands of dollars.

Toward that end, we focused on specific and measurable outcomes, such as reducing unnecessary tests, complications, readmissions and length of stay, and were able to report that we did not incur any additional expense for our work. 

At our first meeting we brainstormed ideas with a focus on eliminating waste and inefficiencies, seeking what was identified as low-hanging fruit. For example, we started with small wins such as eliminating unnecessary tests (chest X-rays and EKGs preoperatively) within the first month and visits to the anesthesiologist two weeks prior to scheduled surgeries by the third month. We also ensured that all tests were ordered by the anesthesiologist within the third month. We kept the size of the steering group to a handful of people to provide flexibility, decisive decision-making and the ability to implement changes. 

The team decided that EKGs were best reviewed by an anesthesiologist and should only be brought to the attention of a surgeon if an abnormality was found. This new protocol for reviewing, ordering and reading EKGs was implemented and resulted in improved surgeon satisfaction because it decreased workload and provided additional over-sight. It’s still too early to report on the financial effects of this change but we expect the elimina-tion of tests to save the institution money.  

Another example of success: The protocol for chest X-rays on all hip and knee replacement patients was changed so that these X-rays were ordered only for patients with symptoms of a heart or lung disease. 

In December a new protocol was created by orthopedist and anesthesiologist leaders to elimi-nate the use of foley catheters unless specifically prescribed by a surgeon and, if used, to remove on the first day after surgery to reduce the risk of infection. Schmidt discussed the advantages of this protocol to reduce infections with surgeons in his practice. He also recognized that surgeons would always need to use discretion due to factors including numbness from anesthetic after surgery and coherence of a patient. A final version of the preoperative testing protocol based upon the patient’s health status as opposed to a “one-size-fits-all” protocol that includes instructions for patient testing such as radiological cardiology and lab tests was fully implemented by December 2015. The cost-saving initiatives are expected to save tens of thousands of dollars, which helped us expand our efforts to create a work group and stream map all processes for elective total hip and knee replacements. 


1.     Schulman S. “The peri-operative surgical home at St. Francis Hospital — The Heart Center®, A Community Hospital Experience.” St. Francis PSH Experience Ses-sion, 2015 Perioperative Surgical Home Summit, June 26, 2015. Steven Schulman, MD.

Jonathan Friedman, MBA, CPC, MGMA member, chief executive officer, PRN Advisors

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