The Journal of Arthroplasty 31 (2016) 2696e2699

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The Journal of Arthroplasty

journal homepage: www.arthroplastyjournal.org

Health Policy and Economics

Patient Perception of Value in Bundled Payments for Total

Joint Arthroplasty
Adam J. Schwartz, MD, MBA a, *, James F. Fraser, MD, MPH a,
Allison M. Shannon, MMS, PA-C a, Nikki T. Jackson, RN a, T.S. Raghu, PhD b
a
Department of Orthopaedic Surgery, Mayo Clinic, Phoenix, Arizona
b
W. P. Carey School of Business, Arizona State University, Tempe, Arizona

a r t i c l e i n f o a b s t r a c t

Article history: Background: A central concern for providers in a bundled payment model is determining how the bundle
Received 3 February 2016 is distributed. Prior studies have shown that current reimbursement rates are often not aligned with
Received in revised form patients' values. While willingness-to-pay (WTP) surveys are perhaps useful in a fee-for-service
17 May 2016
arrangement to determine overall reimbursement, the percentage of payment distribution might be as
Accepted 20 May 2016
or more important in a bundled payment model.
Available online 31 May 2016
Methods: All patients undergoing primary total joint arthroplasty by a single surgeon were offered
participation in a preoperative WTP survey. At a minimum 3 months postoperatively, patients were mailed
Keywords:
bundled payments
instructions for an online follow-up survey asking how they would allocate a hypothetical bonus payment.
health care economics Results: From January through December 2014, 45 patients agreed to participate in the preoperative
bundled total joint arthroplasty WTP survey. Twenty patients who were minimum 3 months postoperative also completed the follow-up
willingness to pay survey. Patients valued total knee and hip arthroplasty at $28,438 (95% confidence interval [CI]: $20,551-
Medicare 36,324) and $39,479 (95% CI: $27,848-$51,112), respectively. At 3 months postoperatively, patients
distributed a hypothetical bonus payment 55.5% to the surgeon (95% CI: 47.8%-63.1%), 38% to the hospital
(95% CI: 30.3%-45.7%), and 6.5% (95% CI:
1.2% to 14.2%) to the implant manufacturer (P < .001).
Conclusion: The data suggest that total joint arthroplasty patients have vastly different perceptions of
payment distributions than what actually exists. In contrast to the findings of this study, the true
distribution of payments for an episode of care averages 65% to the hospital, 27% to the implant
manufacturer, and 8% to the surgeon. While many drivers of payment distribution exist, this study
suggests that patients would allocate a larger proportion of a bundled payment to surgeons than is
currently disbursed. This finding may also provide a plausible explanation for patients' consistent
overestimation of surgeon reimbursements.
© 2016 Elsevier Inc. All rights reserved.

Given the documented value of total joint arthroplasty (TJA) to
patients, it is not surprising that primary and revision total joint
surgery now accounts for more Medicare expense than any other
inpatient procedure [1]. With projections of exponential growth in
the near future, payers have targeted the total joint industry in an
One or more of the authors of this paper have disclosed potential or pertinent
conflicts of interest, which may include receipt of payment, either direct or indirect,
institutional support, or association with an entity in the biomedical field which
may be perceived to have potential conflict of interest with this work. For full
disclosure statements refer to http://dx.doi.org/10.1016/j.arth.2016.05.050.
This study was reviewed and approved by our Institution's Office for Protection of
Research Subjects.
* Reprint requests: Adam J. Schwartz, MD, MBA, Mayo Clinic, 5777 E Mayo Blvd,
Phoenix, AZ 85054.
effort to curb the rising costs of health care. In a push toward value-
based payment for health services, the Centers for Medicare and
Medicaid Services announced the Acute Care Episode demonstra-
tion project in 2009 to pilot-bundled payments for several surgical
procedures, including TJA [2]. The bundled payment model
continues to gain more widespread implementation and, as of
November 2015, Medicare mandated the participation of 800 hos-
pitals in bundled payments as part of the Comprehensive Care for
Joint Replacement project [3]. In these bundled payment models, a
public or private payer provides a single gross payment for a total
joint “episode of care” to cover all procedure and perioperative costs,
including complications such as readmissions. Compared with
current payment models, providers who are able to reduce expenses
and minimize costly adverse events will profit under bundled
payments.

http://dx.doi.org/10.1016/j.arth.2016.05.050
0883-5403/© 2016 Elsevier Inc. All rights reserved.

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 A.J. Schwartz et al. / The Journal of Arthroplasty 31 (2016) 2696e2699
A central concern for providers is determining who should be
responsible for dividing up the lump-sum payment and, of course,
how exactly the bundle is distributed among the various providers.
Bundled payment pilot studies have largely left this question
unanswered by preserving physician payments as is and letting
hospitals assume the risks of additional costs. It is unlikely that
these payment arrangements will remain when bundled payments
become the norm. Some pilot studies have also shared up to 25% of
Medicare bonus payments for quality (which also includes patient
satisfaction as a component of quality measure).
If value is defined as maximizing quality for a given cost, it
would be helpful to understand the drivers of this equation from
the patient's perspective. The main objective of this study was to
gain a better understanding of the relative value patients place on
the three main providers in TJA (hospitals, surgeons, and implant
manufacturers). The findings of the study can help allocate finite
resources to maximize value of the episode of care as perceived by
the patient.
Materials and Methods
All patients undergoing primary TJA by a single surgeon were
offered participation in a preoperative willingness-to-pay (WTP)
survey, administered at the time of a routine preoperative
appointment the week before surgery. Demographic data were also
obtained at the time of the preoperative survey. The preoperative
survey included the following introductory information to anchor
patients' valuation of the 3 main components of their care:
Hip and Knee Replacement surgery costs primarily include three
components:
1. Surgeon fees,
2. Hospital costs and
3. Device costs.
Data from past surgeries show the following range of costs for
each of these components:
Surgeon Fees: Can Range from $1156 to $1804 (Average: $1480)
Device/Implant Cost: Can Range from $1,729 to $12,651
(Average: $4,857)
Hospital Cost: Can Range from $7,129 to $23,264 (Average:
$11,660)
Total Costs for the surgery therefore can range from $10,014 to
$37,719 (Average: $17,997) [4]
At a minimum 3 months postoperatively, patients were mailed
instructions for an online follow-up survey asking how they would
allocate a hypothetical bonus payment. Patients were given the
option to eliminate the bonus if they did not feel it was warranted.
The online instructions read as follows:
To incentivize providers to improve patient safety, Medicare is
considering bonus payments for Total knee or hip replacement
surgeries.
Bonus payments accrue if:
1. There are no complications for at least 90 days after surgery.
2. Patient satisfaction scores for the providers is above a certain
level.
Bonus payments can range from 1% (approximately $250) to 10%
(approximately $2500) of the initial payment to providers.
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2697
Based on your experience post-surgery, indicate how you would
like the bonus payment to be divided:
(The total allocation should amount to 100%)
If you decide that no bonus payment should be made to any of
the providers, please leave the allocations blank.
In addition, patients were asked the following question: “If you
were to spend the rest of your life with your symptoms just the way
they have been in the last twenty-four hours, how would you feel?
(options available: 1ddelighted, 2dpleased, 3dmostly satisfied,
4dmixed, 5dmostly dissatisfied, 6dunhappy, 7dterrible).”
Patients were given access to the online survey with an anon-
ymous unique password, and to avoid potential bias that may have
resulted from completing the surveys in the surgeon's office,
patients were sent instructions to complete the postoperative
survey online through a third-party Web-based survey platform
(Qualtrics LLC, www.qualtrics.com).
Distribution statistics were summarized, and mean bonus allo-
cations were compared using analysis of variance, each pair
Student t test (alpha ¼ 0.05). Statistical analysis was performed
using a commercially available statistics software platform (JMP
version 10.0, SAS Institute Inc).
Results
From January through December 2014, 45 patients, including 24
males and 21 females, agreed to participate in the preoperative
WTP survey. Twenty-three patients underwent total knee arthro-
plasty and 22 patients underwent total hip arthroplasty. Eight
patients worked part-time, 19 patients worked full time, and 15
patients were unemployed. Self-reported annual household
income was <$25,000 in 1 patient, $25,000-$49,999 in 7 patients,
$50,000-$99,999 in 12 patients, and >$100,000 in 13 patients. An
additional 9 patients declined to disclose this information. Twenty
patients (11 total hip arthroplasty [THA], 9 total knee arthroplasty
[TKA]) at a minimum 3 months postoperatively also completed the
follow-up survey.
Patients valued total knee and hip arthroplasty at $28,438 (95%
confidence interval [CI]: $20,551-36,324) and $39,479 (95% CI:
$27,848-$51,112), respectively.
At 3 months postoperatively, all 20 patients who responded
distributed a hypothetical bonus payment. The mean distribution
was 55.5% to the surgeon (95% CI: 47.8%-63.2%), 38% to the hospital
(95% CI: 30.3%-45.7%), and 6.5% (95% CI:
1.2% to 14.2%) to the
implant manufacturer (P < .001; Fig. 1). There were no patients who
allotted <25% of the bonus payment to the surgeon (Fig. 2). In
response to the single question used to measure overall satisfac-
tion, 6 patients were delighted, 9 pleased, 2 mostly satisfied, and 2
mostly dissatisfied. One patient submitted the bonus survey but did
not complete the outcome portion of the online survey.
Discussion
The implementation of bundled payments in TJA is complex
[5-7]. It is difficult to determine how much a total joint episode of
care should cost as the literature documents enormous variations
in hospital, implant, and even surgeon expenses both within
hospitals and between regions of the United States [4,8,9]. In
addition, a key concern for providers in a bundled payment model
is determining how the bundle is distributed.
As a result of the third-party payer system, patients and even
physicians often have little exposure to the costs of health care.
Recent studies have shown that total joint patients' values are often
2698 A.J. Schwartz et al. / The Journal of Arthroplasty 31 (2016) 2696e2699
Fig. 1. Distribution of a hypothetical bonus payment among participants in the post-
operative survey.
misaligned with current reimbursement rates [10-12], and various
authors have attempted to measure patients' WTP for joint
arthroplasties [13,14]. While WTP surveys are perhaps useful in a
fee-for-service arrangement to determine overall reimbursement,
the percentage of payment distribution might be as or more
important in a finite bundled payment model. In this small pilot
study, the data suggest that TJA patients have vastly different
perceptions of payment distributions than what actually exists. In
contrast to the findings of this study, the true distribution of
payments for an episode of care averages 65% to the hospital, 27% to
the implant manufacturer, and 8% to the surgeon [4] (Fig. 2).
Interestingly, responses to the single outcome measure included in
Fig. 2. (A) Graphical representation of the patient-directed bundled payment distri-
bution among participants in this study (P < .001). (B) Graphical representation of a
typical bundled payment distribution.
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the postoperative survey seemed to correlate neither with patients'
likelihood of giving a bonus payment nor with the percentage
distribution of that payment.
Prior reports on patient WTP have focused largely on the
amount of overall reimbursement for an episode of care to a single
provider [10-14]. Foran et al found that on average, patients
thought that surgeons should receive $14,358 for THA and $13,332
for TKA [10]. It is plausible that patients who complete such surveys
might not understand that the entire amount does not, in fact, go
directly to their surgeon and/or that the surgeon is not responsible
for dividing up the lump-sum payment to the various participants
in their care. In our study, patients were allowed to participate in
the WTP portion of the survey only after they read a brief intro-
duction that explained the various average costs of hip or knee
arthroplasty for virtually all aspects of their care. This served to
both anchor the patient to realistic costs and reinforced the idea
that payments to the various participants involved in the bundle
are interrelated. The findings of our study corroborate the numbers
reported by Foran et al [10] if one combines the WTP figures with
the bonus distribution as a proxy for percentage distribution of the
entire bundle (eg, 56% of $39,479 for THA and 56% of $28,438 for
TKA). A unique aspect of our study, however, is that patients were
able to arrive at a similar valuation for surgeon reimbursement by
directing a finite bonus according to their perceived value of
various aspects of their care.
In a bundled payment model, the percentage distribution may
be as or more important than the overall amount of reimburse-
ment. In the current health care environment of rising costs and
declining reimbursements, increasing or maintaining the value of
TJA (defined as maximizing quality while minimizing cost) will
depend on a clear understanding of the individual components of
this equation from the patients' perspective [15]. As an example,
when given a choice between “standard of care” implants, or
newer technology, Schwarzkopf et al [14] found that patients
were willing to pay higher “out of pocket” costs for the perceived
“newer” implants, and 80% of patients were not satisfied with a
“standard of care” implant. In that study, it was impossible for
patients to allocate finite resources according to their values as
the study does not specify where the extra dollars spent on
“newer” technology will come from. Our study eliminates the
possibility of adding infinite hypothetical dollars by focusing on
the percentage distribution of a finite bonus payment. In the
future, if TJA costs continue to rise, and reimbursement levels
remain flat or decline, it will be vital to understand where pa-
tients are willing to sacrifice quality to maintain a given level of
value for a bundled TJA episode of care. It is important to note
that value in TJA is not only perceived from the patient's
perspective but also from a societal perspective [5,6,16]. As it is
impossible to perform a similar survey to determine societal
preferences, we must rely on our patients to guide our valuation
of the various aspects of TJA care.
The most obvious limitations of this study are the small
number of patients and the potential for bias among those who
opted to complete the preoperative or postoperative portions of
the survey. While the number of participants was admittedly low,
the allocations of bonus payments were starkly aligned among
those who did participate, leading to statistically significant mean
value differences. While the findings of this small pilot study may
not justify large-scale alterations to current bonus payment
systems, we believe that the data presented here warrant further
investigation and highlight the divergence of patient values with
current models of resource allocation in bundled TJA. We
attempted to minimize bias by allowing patients to complete the
postoperative survey online, using an anonymous password. As
discussed previously, the percentage allocation of a hypothetical
 A.J. Schwartz et al. / The Journal of Arthroplasty 31 (2016) 2696e2699
bonus payment did not seem to correlate with self-reported
outcome. We have made the assumption that patient perception
of value in a bundled payment would be similar to their valuation
of a hypothetical bonus payment. It is certainly possible that
patient valuation of the main bundle would differ from their
valuation of a bonus payment, although given the correlation of
prior WTP studies with our data (if one uses the percentage
bonus distribution multiplied by the main bundle payment), this
is unlikely to be the case. With current cost structures, it is
difficult to design a study that both anchors patients to the typical
costs of TJA, but simultaneously analyzes patients' relative valu-
ation of the different contributors to the bundle. We used a
hypothetical bonus payment as a means of quantifying patient
perception of value. The 2 advantages of this approach are as
follows: (1) value judgments are not constrained by typical
current cost structures (which were transparently provided to
patients in the introductory material) and (2) patients are forced
to allocate economically finite resources, understanding that
providing a larger bonus payment to one group will necessarily
reduce payments provided to the other participants in the bundle.
Our study is unique compared with other WTP reports that do not
require patients to make this economically constrained judgment.
A final limitation of the article is the exclusion of other aspects of
a TJA episode, including, but not limited to, physical therapy,
rehabilitation facilities, and allied health staff, among others
[17-19]. We chose to focus on what we deemed to be the top 3
expenses that might account for a bundled episode of care, but
the study could certainly be expanded to include these other
aspects of care.
Conclusion
While many drivers of payment distribution exist, this study
suggests that patients would allocate a larger proportion of a bundled
payment to their surgeon than is currently disbursed. This finding
may also provide a plausible explanation for patients' consistent
overestimation of surgeon reimbursements, as they likely errone-
ously perceive that most of a bundled payment goes to their surgeon.
While it is vital that overall reimbursement rates for TJA remain in
line with real expenses, it may be as or more important for surgeons
in a bundled payment model to advocate for improved models of
resource allocation that more accurately reflect patient values.
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2699
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