The Bundled Payments for Care Improvement Program: A Hospital Analysis

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In January, CMS officially launched one of its biggest financial innovation programs under healthcare reform, a program in which more than 500 hospitals, health systems and other providers have enrolled: Bundled Payments for Care Improvement.

BPCI is building off CMS' experiments with bundled payments — the concept that healthcare providers receive a lump sum from the payor. Within BPCI, the idea is that hospitals, physicians and other parties will collaborate to better coordinate care, improve health outcomes, reduce readmissions, diminish duplicative care and lower Medicare costs. CMS will dole out a discounted payment for an episode of care, and in return, everyone gets to share in the savings if the care is delivered efficiently and well.

"Payment reform becomes the impetus for care delivery reform, and you see this with bundled payments," says Deirdre Baggot, RN, former lead for CMS' Acute Care Episode demonstration at Exempla Saint Joseph Hospital in Denver. Ms. Baggot, who also is vice president of consulting firm The Camden Group, was appointed by CMS as an expert reviewer for the BPCI initiative.

BPCI participants applied for the three-year pilot program in 2011, when it was first announced, and there were four models to choose from: Models 1, 2, 3 and 4.

This initiative from CMS is considered to be a bellwether on how bundled payments will work in the future. Because the program has such a large scope, hospital executives — regardless of whether their organization is participating in BPCI or not — need to familiarize themselves with the program, theories and pitfalls.

The bundled payment models

NewCMSlogoModel 1 has 32 total participating hospitals — 29 were convened by the New Jersey Hospital Association, two hospitals based in the San Bernardino, Calif.-area, both of which are part of San Francisco-based Dignity Health, and Phelps Memorial Hospital Center in Sleepy Hollow, N.Y., which was convened by the Greater New York Hospital Association. A second round of providers may be able to participate in early 2014.

As described when BCPI was announced last year, Model 1 involves only the inpatient stay at acute-care hospitals paid under the inpatient prospective payment system, and all diagnosis-related groups are included.

Bundled payment testing for Model 1 is expected to go live this April, and Ms. Baggot says a lot of hospitals did not apply for this model due to a lack of readiness. However, she believes Model 1 offers the "greatest potential savings to Medicare" because it covers all DRGs.

Models 2 and 3 will, for the first time, test bundled payments in a post-acute care setting, and they also feature the most providers. Model 2 includes both the inpatient stay as well as post-acute care, and the hospital decides the scope of DRGs to be included. Model 3 focuses only on post-acute care, beginning when the patient is discharged from the inpatient stay and would end no sooner than 30 days after discharge. Similar to Model 2, the facility chooses the DRGs.

In total, there are 191 hospitals that will participate in Model 2, and 166 home health providers and post-acute care organizations will participate in Model 3. Ms. Baggot points out that although more than three-quarters of BCPI participants are within these two post-acute care models, a lot of private equity companies, law firms and other organizations are behind this push.

"While some have interpreted the number of participants in Models 2 and 3 to suggest greater interest in taking on post-acute risk, the reality is that a small number of applications represent large convener groups in Models 2 and 3," Ms. Baggot says. "And they are dominated by private equity and for-profit interest in the potential opportunity of doubling the size of the bundle with the add of post-acute risk."

Model 4, like Model 1, focuses on the inpatient stay, and hospitals will also bear responsibility for related readmissions. However, like Models 2 and 3, the hospital can propose the scope of DRGs to be included. Seventy-six hospitals are enrolled in Model 4.

Also worth noting among Models 2, 3 and 4 is a new "no-risk" period that lasts for six months, from this past January to July 2013. During this time, termed Phase 1, more than 400 provider organizations will receive new data from CMS on care patterns and engage in shared learning on how to improve care.

"A great add this time around…is that [CMS] has implemented numerous opportunities for hospitals and providers across the country to share best practices in real time and truly collaborate and partner in a way that we didn't have with ACE," Ms. Baggot says. "The scale that BPCI offers, in combination with robust infrastructure to spread best practices in care redesign, is truly groundbreaking."

With the models now outlined, it's perhaps most important to ask: How are hospitals and providers actually getting paid?

How hospitals are getting paid

Ms. Baggot, analysts at The Advisory Board and others believe the lower Model 4 turnout relates to the type of bundling method. One of the big differences that sets Model 4 apart from the others will be its prospective payments. All other models will have retrospective payments.

Under retrospective payment, hospitals receive the usual fee-for-service payment, but then there is a retrospective comparison with the target price outlined beforehand. If there is a positive difference, hospitals share those dollars with all parties involved, but if there's a negative difference, hospitals must give money back to CMS.

Prospective payments are when hospitals agree to a price upfront on a particular DRG, and CMS pays that specific bundled price to the hospital.

Analysts say hospitals appear to be avoiding prospective payments, which are the true future of bundled payments, for the time being. However, they say it's just as important right now to see what episodes and services hospitals are looking to package.

What are hospitals bundling?

Within Model 1, hospitals are bundling all DRGs, but there is provider choice in the other models. The Advisory Board found that Models 2, 3 and 4 offered bundled payments for 48 surgical and medical conditions. Only 34 percent of Model 2, 3 and 4 participants selected all 48 bundles, and almost half chose to only bundled between one and five services.

The five most common clinical bundles, according to The Advisory Board, are:

•    Major joint replacement of lower extremity (78 percent)
•    Congestive heart failure (58 percent)
•    Coronary artery bypass graft (51 percent)
•    Chronic obstructive pulmonary disease — bronchitis/asthma (49 percent)
•    Percutaneous coronary intervention (48 percent)

Benefits and challenges of BPCI

CMS touts BPCI as a program that will "improve the quality of healthcare delivery for Medicare beneficiaries while reducing program expenditures [and] aligning the financial incentives of all providers," said CMS Acting Administrator Marilyn Tavenner when the initiative rolled out.

While those goals and benefits have their merits and fall within the scope of the "triple aim" — improving patient experience and health outcomes while lower costs along the way — Ms. Baggot says it's also worth noting what challenges may fall ahead.

She says while the BPCI initiative encourages better coordination among providers, it also assumes providers already have the right patient engagement strategies.

"A shortfall of the BPCI is that the program design places the onus on providers to crack the code on patient self-management without offering participants the tools by which to do so," Ms. Baggot says. "Asking participants to take on readmission risk assumes that awardees have the ability to effectively engage patients in their own self-management."  

For example, if a patient with congestive heart failure foregoes his or her follow-up exam and decides to not take their diuretic, that patient will mostly likely end up back in the emergency department — and hospitals will not be reimbursed for that readmission.

"The infrastructure to be successful under fee-for-service is very different from the infrastructure needed for success under BPCI," Ms. Baggot says. "Fee-for-service is about many access points and broad reach, where bundled payments are about care coordination, health coaching, monitoring and managing the social factors that have historically resulted in return visits to the ER."

Hospitals must manage the health of their populations closer than ever before, and they will also act as the central payment hub for several groups of providers. As the saying goes, "With great power comes great responsibility" — a phrase that must resonate with hospital and health system leaders who decide to push forward with this new payment model.

"While the BPCI initiative offers the ability to gainshare among providers — thereby facilitating improved care coordination, improved patient experience, improved quality and reduced costs — the current program design shifts significantly greater risk to the hospitals, without policies in place to protect participants against unreasonable risk," Ms. Baggot says. "Hospitals and physicians will need to carefully calculate their potential risk and return and focus their efforts on meaningful care redesign."

More Articles on Hospitals and Bundled Payments:

How Bundled Payments in Orthopedics Can Help Build the Foundation for a Center of Excellence
CMS Announces Bundled Payment Initiative Participants
8 Steps for Hospitals Developing Bundled Payment Programs

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