The purpose of this post is to frame 10 key questions every hospital leadership and board team should be asking today and provide an overall framework for hospital leaders and board members to consider whether you should pursue a more robust and aggressive strategy now for bundled payments.
The top health czar, Alex Azar Secretary for the U.S. Department of Health and Human Services, HHS disclosed last Thursday November 8 that the feds would pursue mandatory bundled payment models.
“We need results, American patients need change, and when we need mandatory models to deliver it, mandatory models are going to see a comeback."
-Alex Azar, Secretary for U.S. Dept. HHS November 8, 2018
Question 1) Why Do The Feds Matter So Much in Healthcare?
With the average hospital attributing more than 30 percent of its revenues to Medicare patients, few if any health systems can afford to ignore this shift. The overarching purpose of bundles is to create financial incentives for a care episode. This is universally considered an effective strategy for improving outcomes, enhancing care coordination and aligning providers behind shared performance improvement goals. The Holy Grail is found when there is shared accountability for costs, price sensitivity, quality and outcomes amongst hospitals, physicians and other providers. For many procedures, there is enormous variation in total costs. For instance, research shows that per episode, payments to highest cost hospitals were higher than those to the lowest-cost facilities by up to $2,549 for colectomy and $7,759 for back surgery. [1]
Question 2) Which Health Systems Need to Reassess Their Bundled Payment Plans Now?
This post is most relevant to leadership for health systems that do not currently have a mature population health infrastructure and have not had long term access to advanced analytics of claims data through an accountable care organization (ACO) or clinically integrated network (CIN). As one physician executive who is also an airplane pilot points out, “That’s like flying a plane in the clouds without the requisite instruments that would provide the necessary situational information for flight safety.” This post also does not cover the more advanced implementation of bundled payments such as shadow bundles.
Question 3) What is a Bundled Payment and Why Are They So Hard?
Bundled payments are where health systems are paid for what is called an “episode” of care. This period is an increment such as 90 days post discharge; the anchoring event has commonly been a surgical procedure like a knee replacement. Although there is typically even more savings to be found in certain medical conditions such as sepsis. There are also more chronic care oriented bundles such as for cancer care. There is significant challenge, fragmentation, and uncertainty in managing the stakeholders and resources needed to be successful in a bundled payment. Though if you’re entrepreneurial, you might see these messy landscapes as a time of great potential and opportunity.
More than 2,000 organizations now participate in a Medicare bundled payment program, such as the Bundled Payments for Care Improvement (BPCI) program, the Comprehensive Care for Joint Replacement (CJR) Model and the Oncology Care Model (OCM). Health systems are typically paid via traditional fee-for-service reimbursement up front. After a period of time to allow for claims run out, payers/insurers look back on actual costs and quality outcomes. If quality metrics are met and the total spend is less than the target price, the payer/insurer will send a certain percentage of the savings to the participants to distribute among themselves as a bonus. If total spend is not less than the target price, providers may have to pay back the difference to the payer. There are typically ceilings that protect from extreme loss.
Further, hundreds of bundled payment initiatives also exist in the private sector insurance world, with more than 20% of employers contracting for bundled payments directly with providers.
Question 4) Why Isn’t Everyone Doing Robust Bundles Now?
There has also been considerable confusion on the role and timing of bundled payments in healthcare finance. Earlier in Trump’s administration when the top health czar in the U.S. and HHS Secretary was Dr. Tom Price, he effectively ended the previously scheduled mandatory bundled payment models. The sometime execution gap in the leadership, resources, and capabilities required to help physicians succeed in a bundled payment can taint any practicing physician’s view of the effectiveness of the bundle model. This is what we believe underpinned the volume of physician feedback to Dr. Price when he influenced the cancellation of the previously mandatory bundled payment models.
Question 5) Can’t We Just Wait Until the Feds Make Bundles Mandatory Again?
Waiting for bundles to become mandatory again and part of contracts and pricing would be too late to achieve future success. There is benefit to redesigning care now when you can reduce costs that accrue to your bottom line and attract both employer and insurer partnerships.
Question 6) Why Can’t We Stick to Small-Scale Bundled Payment Experiments?
The majority of hospitals have been stuck in bundled payment pilot level experiments that are costly to operate and can have limited in impact. Some have lost millions on these limited experiments. Unless you set out to affect your overall costs in a meaningful way, you might not address the volume needed to create sustainable bundle programs. We predict that the winning health systems will continue to develop comprehensive bundle strategies focusing on scale.
According to the consulting firm, Price Waterhouse Coopers/PwC, there is “strong appeal of the bundle concept for consumers and strong pressure from employers to deliver better value, both of which provide further impetus to move beyond the fee-for-service paradigm. Their research suggests both employers and insurers are looking for gains of at least 6 to 10 percent in overall healthcare spending before taking action (contracting). Pilot programs focusing on only one or two conditions cannot hope to achieve this impact.” [2]
Questions 7) What Does Our Organization Have to Decide Today?
Your organization has effectively three choices relative to bundled payments to sit on the sidelines, continue small pilot programs, or revamp your strategy now. Everyone should be in alignment with one of the following:
1) Sit on the sidelines (may be appropriate for some academic medical centers, for example depending on institution priorities between research, teaching, and care delivery).
2) Test small pilots (may be appropriate to level of resources available in both leadership and data).
3) Map out overall strategy to create new value propositions based on execution of bundled payment programs.
The majority of providers that continue to participate in bundled payments have remained cautious and narrow in their efforts, and major joint replacements continue to dominate existing bundles offerings. [3]
So far, increasing co-pays and raising deductibles has had the useful effects on healthcare costs for companies, employers and reducing their premiums. Though employees feel the pinch. Frankly, there’s no room left there. For further cost reduction, leading health systems will be assessing a greater range of diseases for bundles. They will need to scale their currently minimal efforts to be able to realize greater cost advantages.
Question 8) How Should We Align With Population Opportunities?
In an exploding young working population such as Morgan Hill in California, bundles may be focused on maternity care, asthma, and sports medicine. By contrast, markets with a mature population may benefit from bundles targeting joint replacement for hips and knees, diabetes care, and, congestive heart failure
Question 9) How Can We Leverage Our System’s Strengths?
The bundles that a health system chooses to target should be aligned with that system’s capabilities. In order to enable a health system to take on bundles that require more significant integration of care, assessment could be assigned to the following:
1. Clinical strengths such as physician leadership and culture in clinical service lines such as cardiac, cancer, and behavioral health. Where is quality and cost improvements being targeted?
2. Nonclinical strengths such as strong working relationships with specific employers.
3. IT capabilities: change management, technical including infrastructure, data, analytics, applications, and vendor ecosystem orchestration.
4. Medical staff structure and leadership
5. Strong insurance partnerships to leverage risk prediction, access to actuarial data to inform the ability to offer higher-risk bundles for chronic conditions, which employers increasingly desire.
You don’t have to wait for all the above five attributes to be perfect. If you secure improved capabilities for accessing cost and clinical-outcome information by medical condition, this data will allow you to understand the impact of any single initiative. You can use these insights to continue improving performance over time.
Question 10) What Else is Required to Plan For Success in Bundled Payments?
Effective bundled payments require the ability to align with partners across the continuum; engagement and incentive structures will need to be initiated and refined on an ongoing basis. Infrastructure is also required to measure cross-continuum performance through the analysis of claims, provider performance, financial and outcomes data. Further, bundled payments require mobile enabled physicians when quality, outcomes, and payment depend on timely care team action. Medigram leadership understands bundled payments. We look forward to helping visionary health systems achieve your goals
Sincere thanks goes to my husband Dr. Arthur Douville, who is the Bundled Payment Steering Committee Co-Chair for a health system; he has been a key collaborator to Medigram in our understanding of the challenges and dimensions inherent in bundled payments helping to inform our point of view.
By: Sherri Douville, CEO & Board Member at Medigram where she leads a team of top healthcare executives that has created a solution to help health systems improve physician communication, which will profoundly improve hospital finances and save lives. The Medigram team's passion is for the benefits of reducing time to treatment, increasing treatment success and delivering a better worker and patient experience. This is through resilient, instant mobile communications that increase health system revenues by leveraging instant conversational insights. Ms. Douville has 15 years of healthcare experience in product sales and marketing (Johnson & Johnson), and as a healthcare tech product and business consultant. Ms. Douville is a frequent speaker at healthcare conferences and has been quoted in leading Healthcare, Health IT industry, and mainstream IT media outlets 13 times in the past two years. Ms. Douville advises Health IT, AI, and Genetics startups both in the U.S. and in Europe. She and her husband Dr. Arthur Douville together, advise a number of Non-Profits addressing unmet needs in both healthcare and education. Ms. Douville serves on the Board of NorCal Health Information and Management Systems Society (HIMSS). She holds a bachelor’s of science degree in biophysics from Santa Clara University where she serves on the Board of Fellows. Ms. Douville has also obtained three certificates in electrical engineering, computer science and IoT through MIT.
1. Payments to highest cost hospitals were higher than those to the lowest-cost facilities by up to $2,549 for colectomy and $7,759 for back surgery https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2011.0783 12
2. There is “strong appeal of the bundle concept for consumers and strong pressure from employers to deliver better value, both of which provide further impetus to move beyond the fee-for-service paradigm. Pilot programs focusing on only one or two conditions cannot hope to achieve this impact.” https://www.strategyand.pwc.com/reports/go-big-or-go-home
3. Although CMS’s Bundled Payments for Care Improvement initiative encouraged participation in 48 medical conditions or episodes, half of participating providers focused on just one or two conditions, and 72 percent enrolled in three or fewer. Thomas C. Tsai et al., “Medicare’s Bundled Payment Initiative: Most Hospitals Are Focused on a Few High-Volume Conditions,” Health Affairs, Mar. 2015.