Success in a Value-Based World: Executing Physician Collaborator Agreements

Daniel Conville, Project Manager Bundle Payments, DCH Health System

October 27, 2016

Whether your organization is prepared or not, the shift to value-based payments is occurring throughout the healthcare industry.  The Department of Health and Human Services (HHS) has established a goal for 50% of all Medicare payments to be paid through some form of alternative payment model instead of traditional fee-for-service payments by 2018.  Stakeholders throughout the industry must begin strategically collaborating to alter their business and care practices to thrive where payment models are linked to quality over volume. 

For many organizations, the future is now.  Almost 800 organizations in 67 markets were identified as mandatory participants in the Medicare Comprehensive Joint Replacement (CJR) bundle payment model pilot program effective April 1, 2016.  The CJR model seeks to reduce variation in Medicare expenditures and improve quality of care for Medicare beneficiaries undergoing hip and knee replacement procedures.  The Centers for Medicare & Medicaid Services (CMS) studies have shown that the largest variation is directly related to post-acute care utilization and hospital readmissions, and organizations are incentivized to focus on these areas.   The general premise of the CJR model creates a risk-reward scenario for participants.  CMS establishes hospital-specific capitated target prices for a 90 day episode of care and holds hospitals financially responsible for all related services during the episode.  If episode related Medicare expenditures are held below the target price set by CMS, and specific quality outcome standards are met, hospitals can keep a proportion of the monetary difference. If expenditures are above the target price, hospitals are required to repay a proportion of the difference.  

One key component of the CJR model is the provision allowing participant hospitals to enter into collaborator agreements with physicians, post-acute providers, or other suppliers of services during a CJR episode of care.  The goal of this provision is to encourage hospitals and other providers to work together to redesign care processes and improve coordination of care during these episodes.  Specifically, the CJR model allows hospitals to execute agreements with certain providers to share in the financial risk and reward of reducing Medicare spend relative to target prices and any associated internal hospital cost savings. Collaboration among stakeholders is paramount to be financially successful within the CJR model, and hospitals can leverage these agreements to ensure all parties have vested interest in changing the way care is provided.

DCH Health System in Tuscaloosa, Alabama, is one organization that successfully navigated the CJR bundle regulations to execute collaborator agreements with orthopedic surgeons.  Based on its experience, DCH identified four key areas where hospital leaders must focus their efforts:  understand CJR regulations, identify organizational opportunities, provider education, and agreement structure and data management. 

Understanding CJR Regulations

Fully understanding the nuances of the entire CJR rule is the foundation to executing collaborator agreements.  Each value-based payment model is unique with its own specifications.  Episode definitions, quality metrics, target pricing, and collaborator requirements are just a few such instances where models vary.  Hospitals should invest time scrutinizing the CJR regulations to ensure leaders have a clear understanding of the bundle payment requirements prior to engaging in discussion with potential partners.  Other providers are looking to the hospital to be the expert on how the bundle works.  Only with a thorough knowledge of the various players, cost inclusions, and gainsharing legalities can leaders effectively negotiate collaborator agreements.  

Identify Organizational Opportunities

One of the biggest keys to success in a bundle payment model requires organizations to understand their current market characteristics and care practices that influence Medicare expenditures and costs during an episode, and utilize this information to drive change.  Hospitals need to dissect the historic Medicare claims data provided by CMS along with the internal costs associated with an episode of care.  This information will assist leaders in identifying the best opportunities for financial impact around which to structure collaborator agreements. 

The opportunities identified will be unique to each organization, but will mostly revolve around practice variation.  For example, hospitals can pinpoint through data analysis if post-acute care utilization is the main source of spend variation or if readmissions are higher than CMS benchmarks.   This data also enables leaders to identify practice variation between individual physicians.  Do certain physicians refer patients to skilled nursing facilities at a higher rate relative to their peers?  Additionally, hospitals should delve into internal financial systems to determine the specific cost drivers associated with bundle episodes.  Many areas have potential for internal cost reductions – length of stay, implant contracts, operating room efficiency, and supply utilization just to name a few. Once hospitals have identified their specific opportunities, a financial analysis should be conducted to identify breakeven points and potential financial savings if specific targets are attained.  Hospital leaders can then utilize this information to prioritize opportunities that will have the most impact in achieving the desired results.   

Provider Education

With this information in hand, hospital leaders must begin the process of engaging physicians, post-acute providers, and governing boards as partners in the CJR redesign process.  One of the most important first steps is to provide educational sessions to these groups on the bundle’s regulations.  Sessions should be tailored to the specific audience, but at a minimum include an overview of the episode definition, historical hospital spending, target pricing, and how collaborator agreements work.    DCH Health System held several CJR overview sessions with physicians and subsequent individual meetings focusing on the mechanics of the collaborator agreements. Organizational opportunities were reviewed along with potential ideas on how agreements could be structured.  DCH found that an effective means to gaining buy-in is to provide the physicians with a sample agreement and walk through the methodology for calculating gainsharing. 

These sessions provide value in gauging the potential partner’s knowledge level of the bundle and interest in participating as an official collaborator.  For example, DCH found there needed to be further education to partners in the difference between Medicare spend and the internal costs of episodes.  This type of engagement offers opportunity for providers to give insight into other potential sources of cost savings.    

Agreement Structure and Data Management

The CJR regulation clearly delineates how and what funds can be shared between collaborators.  Any gain share payment made to a collaborator can come from two sources – CMS reconciliation funds from achieving a Medicare spendbelow the defined target, and/or internal cost savings.   An important caveat is that shared internal cost savings can only be directly associated with CJR episodes and must be actual, verifiable savings.  Collaborator agreements must contain specific quality metrics related to care redesign efforts that must be met prior to collaborators receiving gain share payments. 

Utilizing the organizational opportunities previously identified can speed up the negotiation process with potential collaborators.   Hospital leaders can reach out to potential partners with suggested quality metrics linked to the organizational opportunities for reducing expenditures and costs.  These metrics should clearly specify what the collaborators must do in order to attain any gain share payment.  For example, if the hospital identifies significant variation in use of a particular high-cost supply item, a quality metric can be created around the implementation of a protocol that defines when such high-costs items should be utilized.  Savings realized based on reduced utilization could potentially be shared with the collaborators.    Providing tangible examples will help collaborators understand the care redesign efforts necessary.  The financial analysis conducted prior to initiating collaborator negotiations provides hospital leaders and governing boards the framework for establishing the dollar value tied to the metrics. 

Hospitals will need to implement a strong data management process to monitor collaborator agreements.  Monthly physician scorecards trending performance on quality metrics serves as an excellent tool for communicating progress toward achieving desired results for care redesign and cost savings.  Hospitals should seek to utilize existing data systems to minimize the administrative burden for monitoring performance. 


The potential for value-based payments resides in improving the quality of care and efficiency of a fragmented healthcare system.  Organization leaders must become knowledgeable of how specific value-based models work and strategically utilize data to structure gainsharing contracts to incentivize the desired changes.  Within the CJR bundle payment, DCH Health System engaged orthopedic surgeons in care redesign efforts of its joint program via collaborator agreements.  The agreements established a shared vision and goals, which have resulted in reduced lengths of stay and the creation of some standardized care protocols.  Everyone – physicians, hospitals, and patients – benefits when true value is delivered in the form of better coordinated care at a lower total cost.