Bundled Pricing Opportunities & Challenges: Q&A With Baptist Health System's Michael Zucker

Vanguard Health Systems' Baptist Health System in San Antonio is one five hospitals in the country participating in Medicare's Acute Care Episode Demonstration project and one of only two to offer bundled pricing for both cardiac and orthopedic procedures. Here Michael Zucker, FACHE, senior vice president and chief development officer at the health system, discusses its bundled pricing initiative and shares opportunities and challenges for other hospitals looking to enter into this space.

Q: Tell me briefly about Baptist Health System's participation in the Medicare ACE Demonstration project. What are some of your key successes to date?

Michael Zucker: Our interest was piqued in the summer of 2008 when CMS announced it was going to launch a demonstration project around bundled pricing. The opportunity presented itself to us — the project was made available to providers in four states (Okla., Texas, N.M., and Colo.). We were interested in being a part of it, and from that point we began to look at it from a strategic standpoint. At that time, we weren't aware that this type of program would position us so well for the future of healthcare reform.
Everyone has been very pleased with the results of the program. So far, we've saved over $2.2 million through the program, and we have distributed $500,000 in shared saving distributions to physicians. Our quality improvements in the DRGs under the ACE program have also been noteworthy. Many of our measures have shown incredible improvements since beginning the ACE program and measures such as infections rates have been in the top percentile among our peer groups, and our compliance to evidence based medicine protocols have been above 97 percent.

Q: One challenge many hospitals face when launching bundled pricing programs is physician buy-in. How did you gain support from physicians for your program?

MZ: We viewed the ACE project as an opportunity to create alignment with our physicians. It is very difficult to do outside of the program. None of the physicians participating in our program are employed. The program allowed us the opportunity for gain sharing, which we believe is a strong driver in us being able to align our interests.

As you can imagine not all of the physicians were excited about the prospect of having the hospital be “in control” of the dollars, or specifically, the bundled payment. But, we had several physician champions who could see beyond the challenges and the potential benefits of the program. We did, however, see a few physicians take their cases elsewhere.  In our efforts to reduce costs, the physicians and hospitals through our newly created PHO, Physicians Aligned for A.C.E. (a.k.a. PAACE), eliminated some orthopedic vendors from our preferred list of vendors. As a result, a few physicians decided their allegiance to their vendor was stronger than that to this evolving program.

Q: Some hospitals enter into bundled payment contracts with the rationale that it will increase volume. Have you seen that at Baptist?

MK: So far, we haven't seen any material increases in volume. Our volume has actually been flat, but given the economic downturn around the country, flat might be pretty good.  There has been some shifting of volume if we examine it on a physician by physician basis.  For example, a doctor that used to do 50 percent of his or her cases here may now be doing 60 percent, likely because of the gain sharing program and improvements in quality outcomes. However, it's difficult to directly relate any changes back to the program.

Q: What do you think has been most critical to Baptist's success in efforts around bundling payments?


MZ: I think openness and transparency with our physicians has been key. We formed a separate PHO with a 50/50 governing board that ultimately defines most of the measures for quality and cost benchmarks and administers the gainshare program.. There has to be openness and trust by both parties for this type of program to work.

Q: What was the biggest challenge your health system faced in getting this program off the ground?

MZ:
Getting the physicians participation in the very beginning was a bit of a challenge. We had a handful of physician champions who did the majority of the work [developing protocols and metrics] even though the rest of the medical staff was skeptical. In the first month, only six physicians received gain sharing checks.  This may have been the turning point, as other physicians began to take notice and physicians began to realize the program was working. The second month there were 13 physicians receiving gainshare checks, and word spread quickly after that. The program has been successful, but we definitely had to get over some uncertainty and skepticism in its early days.

Q: Does Baptist have any plans to expand bundled pricing arrangements with other payors or for other conditions?


MZ: We're really focused on high cost, high volume procedures, which probably is why CMS picked orthopedic and cardiac procedures to test this with first. Right now, we are examining how we might extend this to post-acute care [Editor's note: the Patient Protection and Affordable Care Act creates a pilot that will bundle payment for care up to 30 days post-discharge]. It will require working with an entire new set of providers and an entire new set of challenges and opportunities.

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