9 Best Practices for Bundled Payment Success

The Centers for Medicare and Medicaid Services (CMS) Bundled Payments for Care Improvement (BCPI) initiative has generally been more attractive to providers than either of its two accountable care programs — the Medicare Shared Savings and Pioneer ACO program. Unlike those programs, the BCPI program is typically considered more manageable as it allows providers to choose specific service lines or diagnosis-related groups where quality and cost improvement opportunities exist. Providers are able to choose target areas where they feel they have an opportunity to reduce length of stay, standardize device usage, reduce readmissions or manage post-acute care more effectively. This CMS initiative may lead to commercial payor interest as well.

John Harris, a principal with Bala Cynwyd, Pa.-based DGA Partners, says the following steps can help applicants design strong bundled payment programs that could win CMS approval.  

1. Engage the right team. Hospital management, physicians, outside providers and any other participants expected to provide care or track care of selected bundles should all be involved in the upfront selection and planning. Conversations should occur to align incentives, establish goals and clearly design and understand the new care delivery model. The only way to gain buy-in in implementation is through buy-in during the application design. Providers and administrators should openly discuss key issues, provide forums and opportunities for feedback, and be prepared to troubleshoot and answer tough questions. "Bring them into the same room to ensure they understand the opportunity and have a chance to raise questions about it," says Mr. Harris.

2. Decide which DRGs to bundle. Under BPCI, providers have the opportunity to decide which episodes of care and services are bundled together. Two of the most popular areas for bundled payments have been in cardiovascular and orthopedic care, particularly in joint replacements. These areas typically have DRGs that are high volume and high cost in hospital settings, or of interest to CMS. These areas have also been attractive for bundled payments since they present an opportunity to improve results through a smoother and more standardized clinical continuum, whereas other DRGs may present more variation. Still, applicants should explore DRGs based on their respective patient populations and identify those that present the greatest opportunity for care coordination and savings.

3. Analyze the Medicare data set. CMS has provided historical Medicare claims data, or limited data set (LDS) files, to potential applicants considering Models 2, 3 or 4 of the BPCI. The information contained in the LDS files is meant to help providers define episodes and identify areas of opportunity. Data includes figures such as readmissions associated with inpatient cases, which allows providers to identify external cost savings opportunities. For instance, applicants can see which post-acute providers are low-cost and limit readmissions. "This is new information for hospitals," says Mr. Harris. "It's broadening the hospital's perspective as to what happens inside its doors to what happens to its patients when they leave those doors."

4. Examine cost-accounting data. After analyzing the Medicare data, applicants should analyze their own cost-accounting data to determine internal savings opportunities. "You need to know whether there are opportunities to reduce costs within the hospital," says Mr. Harris. Based on this analysis, hospitals need to estimate how much they can save by improving care processes and reducing variation. This may include internal savings opportunities, such as shifting to a smaller number of implant suppliers. While many hospitals may have traditionally understood internal areas for cost savings, Antikickback and Stark laws may have limited the ability to fully engage physicians in reducing care costs. With the waiver of many of these rules for this initiative, applicants are expected to share savings with physicians and other providers.

5. Design the gainsharing model. "This step defines how you would share the savings the bundled payment may generate with physicians and possibly other providers," says Mr. Harris. Devising this model can be a delicate discussion among the multidisciplinary team, meaning hospital leadership and physicians are especially crucial at this point. "The hospital administration would have to make a decision they felt was reasonable, but they'd have to engage physicians in that discussion," says Mr. Harris.

In setting up the formula for sharing savings, "you also need to consider who bears the risk if the costs are higher than expected," says Mr. Harris. Models 1, 2 and 3 of the program involve retrospective reconciliations, and would include a repayment to CMS if the costs of a bundled payment episode are larger than the targeted costs, according to Mr. Harris. If the hospital bears more risk for paying Medicare back, it should probably retain a larger share of savings if costs are reduced. For Model 4, a prospective payment model, hospitals and CMS agree to a certain payment on specific DRGs. If costs exceed that agreed-upon figure, then the providers have to repay the difference to CMS, according to Mr. Harris.

6. Define the episode. This is the step in which hospitals need to define how long the episode will be and whether there are any clinical conditions that should be excluded. "One or a handful of cases with a particular clinical condition may bring in higher costs than anticipated," says Mr. Harris. For instance, if a patient undergoes a hip replacement procedure but also has a co-existing medical condition, the cost and length of that case may vary and end up being more costly. CMS has set some minimum guidelines for episodes of care and is encouraging longer episodes through lower required discounts. Past demonstrations have focused on 30 days post-discharge, however, some provider programs have used longer episode lengths. Providers should carefully consider existing resources and readiness to manage clinical risk. Also, exclusions will play an important role in determining episode length.

Each model of the BPCI initiative brings different options for defining the "episode of care." Models 1 and 4 define an episode of care as the inpatient stay in the general acute-care hospital. Model 2 defines the episode as the inpatient stay and post-acute care, ending a minimum of 30 or 90 days after discharge — the provider is able to choose either 30 or 90 days. Model 3 is focused exclusively on post-acute care. Under the third model, the episode of care would begin at the initiation of post-acute care with a participating skilled nursing facility, inpatient rehabilitation facility, long-term care hospital or home health agency within 30 days of the patient's discharge from the hospital.

7. Plan the care process redesign and measurement. Applicants will need to examine and assess the current care delivery process for selected DRGs and identify strengths, weaknesses and cost-drivers. "[Providers] need to describe how [they're] changing the flow of clinical care to improve quality and reduce costs," says Mr. Harris. "This is required for the [CMS] application, but it's something hospitals should do anyway. They'll need to define how they will measure outcomes and results and how they will protect patients from any kind of compromise in service quality." Clinical input is vital here since the process redesign will need to be structured to avoid any detrimental effects on quality and safety of care.

8. Set the discount level for Medicare bid. Applicants will need to set a discount level based on what they believe is achievable through care redesign. Setting the discount level is not an easy proposition as it involves estimating what can be achieved. In many cases, providers do not have access to strong benchmarks for costs of care in other settings, as this information has traditionally not been transparent. Thus, providers will have to rely on internal information and physician input for assessing costs and opportunities to reduce variation. When setting these target prices, applicants need to pay attention to the regulations and minimums depending on which model they pursue. "The discount needs to be both attractive to Medicare but also not giving away the store," says Mr. Harris. "There will be less money on the table as a result of pursuing bundled payments, but if the hospital is avoiding unnecessary services or avoidable readmissions, then there could be savings."

9. Assess the financial impact. This is one of the most complicated steps, according to Mr. Harris, since savings in an episode may not actually yield a commensurate benefit to the hospital. For example, because of the high fixed costs of providing care in hospitals, hospitals may cut hospital ancillary use but they may not be able to save as much on operational costs as anticipated.

Another variable to financial results is whether the bundled payment DRGs selected rely on outside providers or involve only hospital-affiliated providers. "You may generate savings by shifting care from a rehab hospital to a nursing facility. If you own the rehab hospital, these savings will also represent a reduction in revenue. However, if you do not own the rehab hospital, the savings will accrue to you without any offsetting loss of fee-for-service revenue."

More Articles on Bundled Payments:

Risk Assumption in the Medicare Bundled Payment Initiative
Post-Discharge Services Create New Challenges for Medicare Bundled Payment Participants
Bundled Payments for Heart Disease Programs Can Save Costs, Reduce Readmissions

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