At its creation, Medicare was composed of two parts: Part A and Part B. Part A provides coverage for inpatient hospital visits, skilled nursing facilities, some home healthcare services, and hospice care. Medicare Part A is funded by mandatory payroll deductions. Furthermore, 99% of beneficiaries do not pay any deductible for care. For the 1% of patients with less than 10 years of Medicare-covered employment, inpatient hospital visits require an annually adjusted deductible, which the Social Security Administration has set at $1,484 as of the 2021 calendar year.¹¹ Those with less than 40 quarters of covered employment must also pay a monthly premium that is also adjusted annually by the Social Security Administration.

Medicare Part B is a supplementary insurance that covers physician services, outpatient services, certain home health services, durable medical equipment, and other specific medical and health services not covered by Medicare Part A. Durable medical equipment may include canes, walkers, wheelchairs, mobility devices, and prosthetic devices. Part B is financed through a combination of premiums paid by enrollees and appropriations from the federal budget. After the annual deductible is met, Part B enrollees are subject to a 20% coinsurance rate. However, Part B covers 100% of preventive services that the US Preventive Services Task Force designated as grade A or B types of preventive screenings such as yearly mammograms and osteoporosis screening.¹¹

Rising healthcare costs in the 1990s became a major concern for the federal government. Maintaining the Medicare program, however, was a major priority, and in 1997, Congress passed the Balanced Budget Act in an effort to balance the federal budget in 5 years. To accomplish this goal, Medicare was expanded. New policies allowed for the coordination between private insurers and Medicare administrators to provide alternatives to the traditional Medicare, thereby placing more of the costs on the individuals. Medicare Part C, also known as the Medicare Advantage plan, offers beneficiaries a combination of Part A and Part B benefits—commonly along with Part D—through approved private insurance entities. Part C offers beneficiaries the flexibility of enrolling in a health maintenance organization (HMO) or preferred provider organization (PPO), while still receiving traditional

Medicare benefits. Enrollment in Medicare Advantage has steadily grown over time and in 2019, approximately one-third of people enrolled in Medicare were enrolled in the Medicare Advantage plan. Specifically, more than 60% of those enrolled in Medicare Advantage select a generally more affordable HMO plan, which can lead to barriers to obtaining specialist care and restrictions to obtaining certain medications.

Entities receive rebates from the federal government for offering Medicare Advantage plans. They are, however, required to use a portion of the rebates to reduce premiums, offer additional benefits, or lower cost sharing for enrollees. Furthermore, enrollees in Medicare Advantage often tend to receive benefits not covered by traditional Medicare, including but not limited to fitness benefits, dental benefits, and eye examinations.

The government further expanded Medicare with the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, creating Part D. Part D provides coverage of prescription drugs to all Medicare beneficiaries through private sponsors regulated by Medicare. Enrollees may voluntarily elect to enroll in Part D, paying a monthly premium and deductible to shield themselves from increasing drug costs.

When Medicare was first established, it covered 19 million US adults. As of 2020, Medicare serves as health insurance for an estimated 61.2 million US adults, a number projected to steadily grow to 80 million in 2030 as the Baby Boomer generation (those born between 1946 and 1964) continues to age into Medicare. Despite many of the changes to increase cost sharing, spending is projected to grow from $750.2 billion in 2018 to over $1.5 trillion in 2028,³,⁷ although these projections are less certain after the effects of the SARS-CoV-2 pandemic. Calls for Medicare expansion have grown in recent years. Policy changes that are possible in the near future include reduction of the Medicare eligibility to age 60 years and including coverage for dental and vision plans. Medicare expansion would also dramatically increase projected future Medicare expenditures.

HMOs are a type of managed care organization that provides integrated care for a patient among an integrated group of providers within the insurer’s system for a certain set payment rate for their services. These providers generally are either employed directly by the HMO or work with a separate group contracted by the HMO. These plans generally offer less expensive health premiums and lower out-of-pocket costs than other types of private insurance; however, these are much more restrictive, providing no out-of-network coverage.

HMOs generally underscore the importance of preventive medicine in their plans, requiring primary care physicians (PCPs) to act as gatekeepers to the medical system. These PCPs only authorize specialty referrals if the HMO guidelines deem them as medically necessary. Moreover, these plans may delay access to specialty care for some patients. If patients decide to visit a healthcare provider out of their network, they may face considerable out-of-pocket costs in nonemergency situations.

A PPO, akin to an HMO, is another type of managed care organization, with a few critical differences. In a PPO, covered populations are encouraged to visit in-network providers for a lower fee. However, patients have the flexibility to seek out-of-network care at a slightly higher cost. Patients in PPO plans may also seek in-network specialty care without a referral from a PCP, and many may elect not to have any consistent PCP. However, these plans are associated with slightly higher premiums and cost sharing than HMO plans.

Point-of-service plans and exclusive provider organizations offer different blends of the traditional HMO and PPO plans. Point-of-service plans allow for the flexibility to seek out-of-network care while still encouraging in-network visits through reduced costs. However, these plans still require patients to first obtain authorization from a PCP to access specialty services, as with HMOs. Exclusive provider organizations restrict all out-of-network care but do not require a PCP to authorize access to healthcare specialists.

Catastrophic or high-deductible health plans offer exceptionally low monthly premiums in exchange for remarkably high monthly deductibles. These plans are designed to offer health insurance for younger, healthier people who may not use health services often but still require protection from high-cost emergency or worst-case situations. To be eligible for these plans, enrollees must either be younger than 30 years or receive an exemption from the government. These plans offer insurance after the deductible is met each year and cover the 10 essential benefits covered by other marketplace plans. As of 2020, the deductible for all catastrophic plans is $8,150.¹⁵

Health savings accounts (HSAs) and flexible spending accounts allow for employers and/or employees to contribute a portion of pretax earnings to healthcare expenditures. By paying for services with pretax income, individuals may be able to reduce overall healthcare costs. Premiums are not usually eligible for coverage by these plans, but deductibles, copayments, and some other expenses are covered. To qualify for an HSA, an individual must be enrolled in a high-deductible health plan, because HSAs act to help mitigate the high deductibles. HSAs can be beneficial for users in that any funds in the HSAs that are unused can be rolled over to the following calendar year annually. Flexible spending accounts function as a line of credit, allowing the user to pay for services beyond what they currently can afford as long as they are expected to be able to obtain the funding by the end of the calendar year. Flexible spending accounts can be used to cover a wider variety of services than an HSA. One such benefit can be coverage of childcare expenses. However, unlike an HSA, any funds not used by the end of the year are lost.

From a patient’s initial encounter with the healthcare system to the final payment of balances, hospital systems around the world engage in basic revenue cycle management to track all revenue from patients. Revenue cycle management can provide key insights to a healthcare institution’s performance and expose barriers to driving improved financial results. Failure to adequately track all patients may often result in delayed payments or instances where no payment is received. Furthermore, health systems may often outsource these responsibilities to specialized companies. Often strategies for a particular health system may involve staffing changes, risk mitigation, cost reduction, and attainment of key performance indicators.

First conceptualized through a multidisciplinary team at Yale University, diagnosis-related groups (DRGs) were introduced to classify products that a patient receives for a care episode.¹⁶ The US government established the Medicare Inpatient Prospective Payment System in October 1983 to use DRGs for Medicare reimbursement in efforts to control rising care costs. Healthcare providers around the United States use diagnostic codes for any patient diagnoses. CMS then reclassifies patients via their assigned primary diagnostic code, up to 24 additional diagnoses, and up to 25 procedures during a hospital stay into one specific Medicare Severity Diagnosis-Related Group (MS-DRG). MS-DRGs are distinct from DRGs because many groups are subdivided into those with or without complications or comorbidities. CMS establishes payment using the average cost of all patients within the same MS-DRG. The total number of MS-DRGs may change annually to incorporate newly defined diagnoses and new technologies, but all are intended to be clinically coherent cohorts wherein all patients have similar conditions. As of 2021, CMS recognizes 767 approved MS-DRGs, of which 75 comprise most orthopaedic surgery care episodes.¹⁷ Importantly, MS-DRG 470, major joint replacement or reattachment of the lower extremity without major complication or comorbidity, represented the fourth most common primary diagnosis among all DRGs.¹⁸

CMS uses a Medicare physician fee schedule to reimburse providers for services rendered through a measurement of relative value units (RVUs). RVUs are determined based on the complexity of a service and resource use with geographical adjustment on a common scale. Changes to the high-deductible health plans must not exceed $20 million in expenditures annually. Moreover, annual updates to increase payments in one area are met with decreases in other areas. Orthopaedic surgery practices, along with other specialty providers, are bracing for drastic cuts in the high-deductible health plans over the coming years. Recently CMS proposed cuts of 5% across all orthopaedic surgery RVUs, with an additional 5.4% reduction in RVUs for hip and knee arthroplasty procedures. The federal government faced increased pressure from all orthopaedic surgery societies and postponed payment cuts because of the effects of the COVID-19 pandemic. However, access to orthopaedic surgery care may be threatened over the coming years if proposed cuts are implemented.

In 2008, CMS implemented the Hospital-Acquired Conditions (HACs) Initiative, aiming to increase emphasis on value-based care.¹⁹ A HAC is defined as a medical condition or complication not present at admission that develops in a patient during a hospital stay. This initiative identified 14 incidences as HAC-defining events, listed in Table 1. Eight conditions are serious reportable events, including foreign object retained after surgery, air embolism, and ABO incompatibility. Five are harmful conditions that occur more often yet are believed to be reasonably preventable if accepted standards of care are followed: stage III and IV pressure ulcer; falls and trauma leading to fractures, dislocations, head injuries, burns, or other trauma; catheter-associated urinary tract infection; vascular catheter-associated infection; and surgical site infection (SSI).

The HAC for SSIs was expanded in the fiscal year 2009 rules to include those following specific orthopaedic procedures and infections following bariatric procedures. An 11th and 12th HAC were also identified: one for serious complications of diabetes acquired during a stay (manifestations of poor glycemic control) and one for deep vein thrombosis or pulmonary embolism following certain orthopaedic procedures.

The HAC Reduction Program became effective in October 2014, aimed at penalizing hospitals experiencing high rates of the aforementioned complications.

Hospital systems with HAC scores in the bottom 25th percentile would see reduced payments of 1% over the fiscal year.²⁰ Aside from reduction in payments as a result of poor HAC scores, these adverse events have direct economic effects. The concept behind linking these adverse events with financial penalty was to create an added layer of institutional incentive, in addition to providing higher quality of care, in an attempt to reduce, or even eliminate, these HACs. In the United States, the incidence of HACs across an inpatient sample of 351 million admissions was 4%, or 1 in 25 inpatient stays.²¹ This rate might vary depending on multiple factors including patient-specific, surgical-specific, and hospital-specific risk factors. By defining some of the risks associated with the most common HACs in common orthopaedic procedures, payers can more appropriately risk-stratify patients prior to surgery. This can be of benefit to both the patient and the provider. There will be less risk associated with surgery performed on a more high-risk patient, leading to more opportunities of care for the patient and less risk of penalty to providers.