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Physician Practice Variation Under Orthopedic Bundled Payment
Joshua M. Liao, MD, MSc; Ezekiel J. Emanuel, MD, PhD; Gary L. Whittington, BSBA; Dylan S. Small, PhD; Andrea B. Troxel, ScD; Jingsan Zhu, MS, MBA; Wenjun Zhong, PhD; and Amol S. Navathe, MD, PhD
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Physician Practice Variation Under Orthopedic Bundled Payment

Joshua M. Liao, MD, MSc; Ezekiel J. Emanuel, MD, PhD; Gary L. Whittington, BSBA; Dylan S. Small, PhD; Andrea B. Troxel, ScD; Jingsan Zhu, MS, MBA; Wenjun Zhong, PhD; and Amol S. Navathe, MD, PhD
This study demonstrates that variation reduction is an important, but not requisite, component of organizational success under orthopedic bundled payment.

This study demonstrates that bundled payment strategy can reduce costs and generate savings by decreasing variation in some practices but not others. Three conclusions are particularly notable.

First, our analysis demonstrates the presence of and change in physician practice variation in implant costs, institutional PAC provider utilization, and total episode payments. In ACE year 1, practice variation between physicians accounted for 15% to 26% of overall variation in these outcomes. The decreases in between-physician variation by BPCI year 2 demonstrate the role of practice variation reduction in decreasing costs and utilization.

This observation is illustrated by the downward shift and narrowing in distributions of our outcomes: Over time, more physicians achieved lower mean implant costs and total episode payments, and fewer physicians discharged a significant portion of patients to institutional PAC providers. Furthermore, the presence of statistically significant physician variation across the study period that was unexplained by observable variables suggests that attention to individual physician practice patterns may help other organizations identify cost and utilization reduction strategies under bundled payment.

Second, this study suggests that reducing physician practice variation may not be an absolute requisite for succeeding in joint replacement bundles. Although physician practice variation only accounted for a portion of overall implant costs and differences in ICC were not statistically significant, we nonetheless observed a steady decrease in between-physician variation over time. In the first year of the bundled payment program, BHS leaders used quality and cost data transparency to leverage physician engagement and lower implant costs program-wide over several rounds of negotiations.10 The observed trend in physician variation reflects the result of this strategy: more consistent pricing across available implant options and systematic cost reductions across physicians.

Conversely, despite the fact that physician practice patterns also accounted for approximately 10% of variation in PAC provider utilization, there was a 40% decrease in institutional PAC provider utilization without substantial reductions in between-physician variation over time. Unlike efforts to reduce implant costs beginning in 2009, BHS was not incentivized to address postdischarge utilization until it was included in bundles in late 2013 under BPCI. In turn, despite a clear shift away from institutional PAC provider utilization under the health system’s BPCI “appropriate discharge location” program, some degree of variation persisted through its first 2 years. These findings suggest that organizations may be able to significantly reduce overutilization even in the early stages of some variation reduction efforts.

Similarly, between-physician variation did not decline amid a 21% decrease in total episode payments. As an outcome, total episode payment reflects the entire array of redesign efforts implemented across a bundle over time. For example, beyond its long-standing implant cost strategy and emerging PAC provider utilization program, BHS also interspersed initiatives to standardize hospital care, increase patient engagement in discharge planning, and implement a postdischarge transitional care management program. The health system’s ability to achieve total episode payment reductions amid multiple initiatives underscores the ability to control episode costs even as physician practice variation persists in some specific processes.

Together, these dynamics may provide insight into the relationships among physician quality and volume with study outcomes. The lack of association between physician quality or volume and implant costs is consistent with organizational strategy designed to drive down variation across high-/low-volume and high-/low-quality physicians. In contrast, the finding that physician volume and quality were associated with PAC provider utilization and total episode payments amid stable between-physician variation suggests that certain physician characteristics may contribute to the effectiveness of other variation reduction strategies.

Third, our findings emphasize the opportunity to preserve clinical appropriateness amid efforts to drive down costs and unwarranted physician variation. As stated previously, a central element of the BHS approach to orthopedic bundles was the preservation of physician choice and patient well-being. For example, physicians were able to seek approval and use implants beyond those on the standard approved list if clinically indicated.10 They were also able to deviate from standardized care pathways when needed to prioritize patient needs. Our results suggest that retaining clinical flexibility amid variation reduction efforts does not impede success under bundled payment.


Our analysis possesses several limitations. First, it is descriptive and not designed for causal inference. Second, our study describes the experience of a single institution and therefore may not be generalizable to all organizational and market environments. However, as the first analysis to quantify physician practice variation in both internal hospital costs and Medicare payments under bundled payment, it provides important information for a growing number of organizations considering or entering into similar bundling arrangements. Additionally, this analysis provides insight into potential mechanisms underlying the previously described impressive cost savings BHS achieved compared with other hospitals and BPCI participants nationwide.4,5 Third, our results must be contextualized within unresolved questions about bundled payment, including whether it induces hospitals to perform more procedures and/or select healthier patients, thereby undercutting any touted cost savings.21 However, although further work is needed in this area, volume increases may represent improved value and do not by themselves represent policy failure.22,23 Finally, our analytic approach was unable to account for changes in implant technology or other concurrent nonbundled payment policies over the study period.


Significant physician practice variation was observed under bundled payment at BHS. Over time, variation decreased by varying amounts for all 3 outcomes of interest, although differences were not statistically significant. Additionally, physician volume and quality were associated with institutional PAC provider utilization and total episode payments, but not implant costs. These findings demonstrate that although some organizational strategies achieve gains by reducing physician practice patterns, variation reduction among physicians is not an absolute requisite for success under bundled payment.


The authors thank Gary Whittington, Richard Bajner, and Brian Fisher for access to the data. Written permission has been obtained from all persons named.

Author Affiliations: University of Washington School of Medicine (JML), Seattle, WA; UW Medicine Value and Systems Science Lab (JML), Seattle, WA; Leonard Davis Institute of Health Economics (JML, EJE, ASN), and Perelman School of Medicine (EJE, DSS, JZ, WZ, ASN), University of Pennsylvania, Philadelphia, PA; Lovelace Health System (GLW), Albuquerque, NM; New York University School of Medicine (ABT), New York, NY; Corporal Michael J. Cresencz VA Medical Center (ASN), Philadelphia, PA.

Source of Funding: This work was supported in part by The Commonwealth Fund, which had no role in study design; data collection, management, analysis, and interpretation; or manuscript preparation or approval.

Author Disclosures: Dr Emanuel reports board membership on VillageMD, JAMA editorial board, and Council on Foreign Relations; paid advisory board membership on Peterson Foundation Advisory Board; employment with Fox News Channel, University of Pennsylvania, and Oak HC/FT; representation by the Leigh Bureau, a speaker’s agency; and stock ownership in Nuna. Mr Whittington reports employment as the Market CFO of Baptist Health System, which is involved in bundled payments; membership on the system’s advisory board of directors; attendance at healthcare conferences on bundled payments; and stock ownership in Tenet Health, the parent company of Baptist Health System. Dr Zhong reports employment with Merck (unrelated to the present work) and the University of Pennsylvania. Dr Navathe reports consultancies for Navvis and Company, Navigant Inc, Lynx Medical, Indegene Inc, and Sutherland Global Services; grants received from Hawaii Medical Services Association and Oscar Health; and honoraria from Elsevier Press. The remaining authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (JML, EJE, GLW, ASN); acquisition of data (JML, GLW, ASN); analysis and interpretation of data (JML, EJE, DSS, ABT, JZ, WZ, ASN); drafting of the manuscript (JML); critical revision of the manuscript for important intellectual content (JML, EJE, GLW, DSS, ABT, JZ, WZ, ASN); statistical analysis (DSS, ABT, JZ, WZ); provision of patients or study materials (GLW); obtaining funding (ASN); and supervision (ASN).

Address Correspondence to: Joshua M. Liao, MD, MSc, 1959 NE Pacific St, BB 1240, Seattle, WA 98195. Email:

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