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Payment bundles improve surgical efficiency

A project to improve the utilization and efficiency of orthopedic surgery in the public hospital system of New Zealand suggests that bundled payments can be effective. Translating these results to America remain challenging.

New Zealand’s tax funded public health system recently attempted to improve the efficiency of many elective surgical procedures in order to expand availability of such procedures to the general population. District health boards manage, own, and deliver care in the public hospital sector. Services which cannot be delivered via the public system may sometimes be contracted out to private fee-for-service providers.

Source: (Flickr/CC)

Source: (Flickr/CC)

In an effort to increase the provision of elective surgery (mainly hip and knee replacements) within the public hospital system, one district health board piloted a “package of care” option. Similar to the bundled payment experiments currently evolving in the United States, the package of care system pays a fixed fee to surgeons and anesthesiologists to provide for the entire episode of care for a patient’s surgery. Those providers, then had to create their own care teams and perform a minimum number of surgical cases daily.

As opposed to ordinarily salaried surgeons and anesthesiologists who had no such minimum case requirements, the package of care contracts contained risk-sharing components which incentivized the surgeons to minimize operating time and hospital length of stay. The incentives, although directed at surgeons, spread to nurses as well. Even though nurses remained outside the pilot, they retained their full salaries and were incentivized by having the flexibility to conclude their day at the end of all scheduled cases.

Opinions from stakeholders demonstrated that elective procedures which would have been performed in the private market have shifted to being performed within the public system. Negative comments from anesthesiologists focus on inequitable payment differentials favoring surgeons. Despite, some negative viewpoints, the package of care program promoted speedier surgeries and improved turnover of operating rooms between surgical cases.

The district health board in New Zealand undertook a retrospective matched cohort study of cases performed under the package of care contract versus typical salaried care. Using a sample of 177 total hip replacements, the package of care pilot resulted in noticeably shorter operating room times (100 versus 166 minutes), shorter median hospital stays (3 versus 5 days), and significantly lower total costs (11 percent lower).

Analysis of a set of 158 knee replacements demonstrated similar findings. Operating room times decreased in the package of care group (109 versus 173 minutes), as well as hospital length of stay, and costs (decreased significantly by 17 percent). Researchers did note the potential for cherry picking of cases by surgeons but did not objectively search for evidence of such adverse behavior.


Bundled payments represent an evolving way to pay for the provision of health services. These arrangements are popping up among private payers as well as in the public sector. Although the delivery systems in New Zealand differ largely from the United States, important lessons can still be learned.

Bundled payments can encourage more efficient care and improve productivity (compared to a salaried contract). How this compares to a traditional fee-for-service contract, as occurs in Medicare, remains to be seen. Despite prior bundling experiments which urge caution, the New Zealand experience shows that empowering physicians to select teams and improve processes can lead to desired results in a bundle payment strategy.

Policy makers may wish to consider this when determining the locus for payment bundling. These data suggest the physician might best determine low-cost hospitals as opposed to hospitals seeking out low-cost physicians. In practice, it is the physician who is the patient’s advocate and agent, therefore it would make sense that clinicians control the bundle of care.

Ashton, T, et al. “Improving the productivity of elective surgery through a new ‘package of care’.” Health Policy. 2012 Nov; 108(1): 45-48.

commentary by

Cedric Dark, MD, MPH

Cedric Dark, MD, MPH, FACEP
About Cedric Dark, MD, MPH, FACEP

Cedric Dark, MD, MPH, FACEP is Founder and Executive Editor of Policy Prescriptions®. A summa cum laude graduate of Morehouse College, Dr. Dark earned his medical degree from New York University School of Medicine. He holds a master’s degree from the Mailman School of Public Health at Columbia University. He completed his residency training at George Washington University. Currently, Dr. Dark is an Assistant Professor in the Department of Emergency Medicine and a Health Policy Scholar in the Center for Medical Ethics & Health Policy at Baylor College of Medicine. He produces a health policy podcast for the American Academy of Emergency Medicine. Dr. Dark’s commentary and opinions on this website are his own and do not represent the views of Baylor College of Medicine or the American Academy of Emergency Medicine. Contact: Website | Facebook | Twitter | Google+ | YouTube | More Posts