Why bundled payments are here to stay

In November, I had the opportunity to be the chairman of a bundled payment conference on the Monday following the Presidential election.

I knew exactly what I was going to say until I woke up on the Wednesday morning before the conference and discovered that Donald Trump won the election and was the President-elect. I thought about his campaign pledges to repeal the Affordable Care Act (ACA) and briefly wondered if this meant the end of bundled payments. It didn't take me long, however, to conclude that bundled payments are here to stay and I presented this view in my opening remarks at the conference. There were numerous other speakers at the conference representing commercial insurers and health systems - all of the speakers addressed this topic and agreed with my conclusion. In this article I will explain why.

When looking at the future of bundled payments under CMS programs, it is useful to look back in history. The view that the fee-for-service system is unsustainable and that value-based care is a solution has long had strong bi-partisan support in Congress. Congress recognizes that our health care system needs programs that will improve the quality of care while reducing costs. The Acute Care Episode (ACE) Program, CMS' first bundled payment pilot, was launched during the George W. Bush administration. This bi-partisan support for value-based care continues today with extremely strong bi-partisan support for the recently enacted MACRA Quality Payment Program. Importantly, in a 2012 report the Congressional Budget Office determined that the CMS bundled payment programs were producing savings while that conclusion could not be reached for the Accountable Care Organization (ACO) programs. Those involved in the CMS bundled payment programs have seen the proof of this as the target prices from which episode gains or losses are calculated have been declining for the total joint replacement episode of care (the highest volume bundled payment episode), reflecting decreasing costs across the country.

It is likely that no one knows the details of how the new administration will change these payment reform programs. In January 2015 CMS announced its goal of making 30% of its payments under Value Based Programs by the end of 2016 and increasing this target to 50% of all payments by the end of 2018. CMS achieved the 30% goal early in 2016, almost one year ahead of schedule. In order to reach the 50% goal, CMS has instituted mandatory bundled payment programs like the Comprehensive Care for Joint Replacement (CJR) Program and the Episode Payment Models (EPM) proposed rule.

While President-elect Trump campaigned on the repeal of the ACA, he also supported universal coverage and a one payor system during his campaign and, since winning the election, has voiced support for coverage of pre-existing conditions and children up to the age of 27. The republicans in congress seem intent on repealing all or parts of the ACA but do not have a clear vision of what to replace it with. President-elect Trump's nomination of Congressman Tom Price, M.D. to serve as Secretary of the Department of Health and Human Services adds more uncertainty. Congressman Price was the lead author of a letter sent by House Republicans to CMS this September that was critical of the mandatory nature of the CJR and proposed EPM bundled payment programs. In view of this, many observers have speculated that future CMS bundled payment programs may be purely voluntary and that CJR and EPM may be converted from mandatory to voluntary programs.

Another factor that will motivate participation in bundled payment programs is that CMS is proposing to create a new voluntary Bundled Payment for Care Improvement (BPCI) Program and new tracks for CJR and EPM that would qualify as Advanced Alternative Payment Models (APMs) under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Other types of Advanced APMs include certain CMS ACO programs where the participants have more than nominal downside risk. Under MACRA, physicians are at risk of substantial reimbursement reductions if they do not have high enough quality scores under the Merit-based Incentive Payment System (MIPS). These reimbursement reductions begin at 4% and escalate over time until they reach 9%, a very material penalty which could challenge the viability of some medical practices. If a physician, however, has sufficient involvement in Advanced APMs they are exempt from these reimbursement reduction penalties under MIPS. This exemption from MIPS is intended by CMS to be a compelling incentive for physicians to participate in Advanced APMs and I anticipate that it will stoke physician demand for inclusion in these programs. If the new voluntary BPCI program that CMS has proposed to create in 2018 allows physicians groups to take the financial risk on the episodes of care as the original BPCI program does, this will be an additional incentive for physicians to participate in bundled payment programs.

For all the reasons cited above, it seems that the CMS bundled payments will continue and will likely expand. If the CJR Program, the EPM Program and future CMS bundled payment programs are purely voluntary as opposed to mandatory, the rapid pace of adoption of the programs would likely slow down considerably, especially in the short term. But the pressures that are driving health care reform are not going to vanish and these pressures, and the Advanced APM incentive offered under MACRA, will cause CMS bundled payment programs to continue to expand.

While CMS has led the charge regarding bundled payments, commercial insurers and self-insured employers have been following suit. Within days of CMS' January 2015 announcement of its goals to make 30% of its payments under value based programs by the end of 2016 and to make 50% by the end of 2018, the Health Care Transformation Task Force announce that its members set a more ambitious goal of making 75% of their payments through value based programs by 2020. This task force is made up of some of the country's largest insurers and providers, including Aetna, Blue Cross Blue Shield of Massachusetts, Blue Shield of California, Partners HealthCare, and Trinity Health. On December 6, 2016 this task force sent a letter to President-elect Trump urging him to continue these value-based programs. The letter notes that its member have made great progress in achieving this 75% goal by 2020 and were already at the 41% mark in 2015.

United Healthcare recently announced an expansion of its bundled payments program and said it expects to make $50 Billion in value based payments in 2016 and expects to increase this to $65 Billion in 2018. United Healthcare said the expansion of its bundled payments program has been largely driven by demand for them from employers. In recent years a number of employers have announced commercial bundled payment programs, including Wal-Mart, Lowe's, PepsiCo, Boeing and Kroger. These trends seem likely to continue. At the recent bundled payment conference I mentioned at the beginning of this article, all of the payors and health systems stated that they were committed to expanding their bundled payment programs into new episodes of care.

In conclusion, no one has a crystal ball and there is great uncertainty as to what changes will be made to CMS payment reform programs under the new Trump administration. But, for all the reasons stated above, it seems likely that bundled payment programs are likely to continue and to expand, although there may be some fits and starts along the way. It will certainly be interesting to see how this all evolves.

Paul Jawin, JD
Vice President, Stryker's Performance Solutions
917 880 8515

Paul brings more than 30 years of legal, business, financial and capital markets experience to his role in developing physician alignment and payment reform programs. A co-founder of Comprehensive Care Solutions—acquired by Stryker in 2012—he has helped physician organizations and health systems align and turn reform into opportunity by utilizing new payment and delivery structures, including Accountable Care Organizations (ACO) and bundled payments.

Paul is a regular speaker at industry conferences and events, including the American Academy of Orthopaedic Surgeons Hospital-Physician Alignment Symposium. He co-founded and served as Senior Vice President and General Counsel of Secured Independence, Inc., and has held senior executive positions with public and private companies involved in real estate and senior housing. Paul has a Bachelor of Arts degree in History from Ithaca College, and practiced corporate, securities and real estate law in New York City for more than 10 years after graduating from Syracuse University School of Law with a Juris Doctor degree.

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