Bundled Payment Are Here to Stay

Guest post by Neil Smiley, CEO and founder, Loopback Analytics.

Neil Smiley
Neil Smiley

When I remodeled my house a few years ago, I hired a contractor, and negotiated a bundled payment for the entire job.  The fees I paid to the contractor covered project management costs as well as the costs of independent subcontractors assembled do the work, such as carpentry, dry-wall, electrical and painting.  The contractor stood to make a nice profit if they efficiently managed the work of their subcontractors. On the other hand, he could lose his shirt if there were unmanaged rework and cost overruns.

Bundled payments are still relatively rare in healthcare. If a patient has knee replacement surgery, each provider – the surgeon, anesthesiologist, hospital, rehab facility and home health agency are paid separately. The patient is often left to serve as their own general contractor, without any one provider responsible for the cost and quality of episode. As a result, there can be significant variations in episode cost and clinical outcomes for the same procedure.

CMS has been experimenting with voluntary bundled payment demonstration projects for about five years. In 2011, CMS launched the Acute Care Episode (ACE) program with a handful of healthcare systems. In 2013, CMS began the Bundled Payment Care Initiative (BPCI) with over a hundred participating hospitals. The bundled payment programs included different conditions, procedures and episode durations. However, they all worked in a similar way: CMS combined a bundle of health care services that had been previously paid as separate components. A bundled payment price was set, representing the average historical episode cost, less a withheld amount (typically around 3 percent). A general contractor (AKA “convener”) was assigned responsibility for the total cost and quality of the episode of care. After five years of voluntary experimentation, the concept of bundled payments is about to go big.

In April 2016, CMS will require 800 hospitals that are located in one of 67 geographic regions to be conveners for Comprehensive Care for Joint Replacement (CJR) surgeries – mostly elective hip and knee replacements.  The bundle payment will include the costs of the hospital stay along with all related costs within 90 days of the hospital discharge. Each of the providers involved in the surgery and post-discharge care will continue to bill Medicare as before, but the hospital will now be financially responsible for all of the costs. If the bundled costs are below the target price, the hospital will receive a bonus that they may share (or not) with the other providers participating in the care episode. However, if costs are above the target, the hospital is responsible for paying the difference to CMS.

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The Outlook for ACA Healthcare Delivery Reforms

Guest post by Ken Perez, vice president of healthcare policy, Omnicell, Inc.

Ken Perez
Ken Perez

The Patient Protection and Affordable Care Act (ACA) mandated five major healthcare delivery reforms that collectively aim to improve care quality and slow the growth of healthcare spending. In the five years since passage of the ACA, each of these delivery reforms has been implemented, revised and broadened.

What is the outlook for these changes? Clearly, the long-term strategic intent of the Obama administration is to shift Medicare payments from fee for service to fee for value. On Jan. 26, 2015, Health and Human Services Secretary Sylvia Burwell set forth quantified goals and an aggressive timeline for directing an increasing share of Medicare payments through alternative payment models (APMs) such as accountable care organizations (ACOs) and bundled payments, from 20 percent in 2014 to 50 percent in 2018. Let’s consider each of the major healthcare delivery reforms.

Accountable Care Organizations

On January 11, the Centers for Medicare & Medicaid Services (CMS) announced that 477 organizations are participating in one of Medicare’s four accountable care programs.

With 434 current participants, the Medicare Shared Savings Program (MSSP) accounts for the vast majority (91 percent) of the total. Although the total number of MSSP ACOs has grown steadily each year since the program’s inception in 2012, cumulatively about 100 ACOs (19 percent) have dropped out of the program.

Medicare’s first ACO program, the higher-risk, higher-reward Pioneer ACO Model, suffered numerous departures during the second half of 2015, as the number of Pioneers has dropped from 32 original participants announced in December 2011 to a current total of nine, a 72 percent decline. However, some of the departing Pioneers have transferred to the MSSP or the even higher-risk, higher-reward Next Generation ACO Model, which was launched in March 2015.

CMS also disclosed that 21 organizations are participating in the Next Generation ACO Model, including five former Pioneers. The remaining 13 of the 477 ACOs are the initial participants in the first disease-specific Medicare ACO program, the Comprehensive ESRD Care Model, which was announced in October 2015.

Despite these seemingly impressive numbers, to achieve the aforementioned goal of flowing half of Medicare payments through APMs by 2018, CMS needs even more growth in the number of Medicare ACOs coming onboard in the next couple of years, perhaps 150-200 net new ACOs per year in 2017 and 2018.

Bundled Payments

In 2013, CMS launched the Bundled Payments for Care Improvement Initiative (BPCI), a voluntary program which offers providers four episode-based payment models. In three of the models, implementation is divided into two phases. During Phase 1, “the preparation period,” CMS shares data and helps the participating providers learn in preparation for Phase 2, “risk-bearing implementation,” in which the providers begin bearing financial risk with CMS for some or all of their episodes. CMS required all participants to transition at least one episode (e.g., Acute Myocardial Infarction) into Phase 2 by July 1, 2015, to continue participating in the BPCI.

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Health IT Industry Slips Under Radar of Accountability

Guest post by Dr. Andrey Ostrovsky, co-founder and CEO, Care at Hand.

Andrey Ostrovsky, MD
Andrey Ostrovsky, MD

Seven-hundred-and-seventy billion dollars in Medicare and Medicaid spending and more than one fifth of the federal budget is going to be spent very differently in 2018 compared to today. In particular, Health and Human Services (HHS) secretary Sylvia Burwell declared that at least 50 percent of Medicare payments will be tied to value-based models, such as bundled payment or accountable care organizations, by the end of 2018. The majority of Medicaid dollars have already shifted from fee-for-service (FFS) to managed care. Providers, payers and even patients are increasingly being held accountable for health outcomes and cost of care. So how come there is no accountability for the health IT industry?

There is no 30-day readmission penalty for EHR vendors. There is no medical-loss ratio applied to population health management platforms. There is no shared savings for predictive analytics apps supporting bundles. The lack of accountability in the health IT industry is hampering the promising shift in the rest of the healthcare system from volume to value.

Technology has the potential to speed up adoption of payment-for-performance and achievement of the Triple Aim including improving outcomes, decreasing cost and improving patient experience. However, a recent analysis by the Institute for Healthcare Improvement (IHI) found major gaps in the current digital health ecosystem with only 2 percent of technologies achieving all three aims and only 23 percent of technologies having any peer-reviewed research evidence for their claims.

While regulation can slow tech innovation and the FDA should be commended for loosening its regulatory grip over apps, financial incentives and constraints should be put in place to spread the risk – and reward – that the entire healthcare system is facing to the HIT industry as well.

Before the federal government realizes that health IT has slipped under the radar of accountability, our industry has a chance to shape it’s own future by incorporating risk-bearing into our business models. More important than the viability of technology vendors is the implication of accountability on the lives of vulnerable consumers and sustainability of providers serving those consumers.

The following guiding principles can ensure that vendors are held accountable of supporting high-quality, patient-centric delivery models and achievement of the Triple Aim:

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