Baptist Health made money on hip and knee replacements by spending less on each one

Baptist Health System, a five-hospital group in San Antonio owned by for-profit Tenet Healthcare, made money doing what was once industry heresy: reducing patients' use of the medical system. Under an Affordable Care Act experiment run by Medicare's Center for Medicare & Medicaid Innovation, Baptist took responsibility for the entire hip- and knee-replacement episode — admission, surgery, rehab and anything else within a month — instead of managing only what happens inside its doors.

Medicare cut its average payment by 3 percent and paid Baptist a lump sum per patient: come in under it and the system and its orthopedic surgeons kept and split the difference so long as quality held; run over and Baptist was on the hook. Surgeons with a stake in the total bill became discriminating implant shoppers — 'prices started plummeting the second the flashlight got lit on the implant makers', said surgeon Sergio Viroslav — and, learning post-acute care can be nearly half the cost, chose home therapy over nursing homes unless clearly needed.

A preliminary CMS Innovation study of the tests at Baptist and elsewhere found substantial savings, shorter hospital stays and less use of expensive nursing facilities. An earlier, hospital-only bundled experiment at Baptist had saved $284 per patient. Policymakers bet heavily on the arrangement: Medicare said it aimed to route half its reimbursements through such alternative payment methods by 2018.

Give one system a lump sum for the whole episode of care and let it keep the savings — profit flips from doing more to doing less.

Bundling the whole episode put hospital and surgeons on the same side of the ledger, making cost discipline everyone's problem.

Financial education did the heavy lifting — surgeons admitted they had never known what devices and referrals actually cost.

Keep-the-savings upside, rather than mandates, changed clinical choices: implants, therapy settings, even warfarin protocols.

Aligning independent surgeons with the hospital took deliberate trust-building, including shared science-based recovery rules.

When the bill is bundled, the whole chain shares one incentive — cost falls without a mandate because every actor now profits from restraint.

Experts cautioned the Baptist model might be hard to reproduce elsewhere or extend to other diseases; chief development officer Michael Zucker declined detailed figures. Medicare pressed ahead with alternative payment models, and the experiment became a template for bundled-payment programmes.