Bundled Payment: Is my Organization Ready?

Jade Gong, Vice President of Strategic Initiatives


Bundled payment—a lump sum payment for a defined episode of care—offers post-acute providers an opportunity to proactively jump on the continuing wave of care delivery reform and demonstrate their ability to deliver cost-effective, high-quality patient care outside of the costly inpatient setting. Both private payors and the Center for Medicare and Medicaid Innovation (CMMI) are bullish on the bundling concept, viewing it as a narrower and more manageable approach to value-based payment than accountable care organizations (ACOs), which require effective management of an entire patient population. In contrast, bundled payment allows providers to identify a discrete group of patients—such as joint replacements, heart failure or strokes—and develop an evidence-based, standardized care protocol with a set price for care delivery. Providers then take on risk if the actual costs are greater than that price and have the opportunity to share in savings if actual costs are lower than that price. For hospital executives oriented to acute care delivery, adapting to and understanding the nuances within the various non-acute settings and how they can actively participate in accountable care delivery can be a daunting task. The topics below are offered as strategic actions to be taken to structure successful partnerships within your health provider community.

Bundled Payment: The Next Frontier of Cost Savings

With CMMI in the final stages of launching its Bundled Payments for Care Improvement (BPCI) initiative and expected to announce a new round of applications in 2013, now is an opportune time for postacute providers to reflect on whether bundling is a viable strategy to cement their role as a high quality, low-cost provider in a continuum of accountable care-ready providers. One of the key findings from the first round of the BPCI initiative was that the first post-acute care setting in which a patient is discharged was the most variable aspect of payment within the episode. Further, episodes in which a patient was discharged to an institutional setting (SNF, IRF or LTACH) resulted in higher episode payments.1 CMMI’s attention is undoubtedly turning to the cost savings opportunities within the post-acute sector, and it is eager to see a greater response from the sector during the second round of applications. Despite the large number of post-acute providers that submitted letters of intent under Model 3, very few actually applied. Similarly, hospitals that applied under Model 2 are recognizing the importance of post-acute care to cost management, and will likely engage post-acute providers to a greater extent in the care redesign process for the next round of applications.

While this provides an unparalleled opportunity for post-acute providers to participate in bundled payment, the application process remains an extensive undertaking. To assist providers in early preparatory efforts, Health Dimensions Group (HDG) is pleased to present the first in a series of papers on bundled payment. HDG has drawn upon its expertise from working with clients on the BPCI initiative to create a framework for deciding whether bundled payment is a good fit for your organization. We encourage you and your colleagues to use this paper as a springboard for discussion and to reach out to our staff, who have experience working with clients on the BPCI initiative, to assist with this selfassessment.

Bundled Payment: A Substantial Commitment of Organizational Resources

Preparing an application to participate in CMMI’s BPCI Initiative was an extensive undertaking for the post-acute providers that participated, and it doesn’t seem to get any easier once the application stage is over. Hospitals participating in CMS’s Acute Care Episode demonstration project (commonly referred to as the ACE demo, an inpatient only bundling project) report continuing to make new investments in staff and technology to effectively manage the bundle from a resource utilization and billing perspective once implemented.

Undoubtedly, both ACE demo participants and post-acute providers applying to the BPCI initiative have learned an immense amount about their care delivery systems and where they fall relative to the high-quality, low-cost, best practice care heralded by accountable care driven payment models. Participants refer to the ACE demo and BPCI initiative as a forcing function—a firm deadline that accelerated the organization toward accountable care readiness. In the long term the benefits of such early preparation will be immense, but the momentum for corralling the resources necessary for success today for a longer-term goal can be challenging.

Readiness Self-Assessment: An Essential First Step

Before charging down this path, HDG recommends evaluating where your organization stands relative to three characteristics: executive commitment, resource commitment and the size and diversity of service lines.

1. Executive commitment

Without widespread support across the executive suite of your organization, pursuing a bundled payment application will likely not be successful. While there should be one or two executives dedicated to leading the project, all executives should be fully educated on the mechanics of the process, the long-term benefits and the resource commitments necessary. Unforeseen challenges will arise throughout the process and having the immediate support of the executive team is vital to being able to quickly and successfully address these issues.

2. Resource commitment

A common occurrence across post-acute providers who applied for Model 3 under CMMI’s BPCI initiative was an underestimation of the human and financial resources necessary. At a minimum, organizations should dedicate one executive and one project manager to lead the application, with this being their principal responsibility across the application period. In addition, clinical leaders (director of nursing, unit managers, director of rehabilitation, etc.) will need to be engaged during care process redesign. Financial and IT leaders will need to provide feedback on current cost tracking capabilities and collaborate with external consultants to establish a cost tracking infrastructure and determine feasible discounts to propose to CMMI.

In addition to internal staff, practically all applicants hired an external data analytics firm to assist in running models of various bundled payment episodes to determine the discount at which each would be financially feasible. Many organizations also engaged clinical consultants to assist in care process redesign and strategy consultants to oversee the process in conjunction with an internal project manager. The vast majority of organizations participating in the BPCI initiative—even those routinely cited as the most sophisticated providers—recognized they simply did not have the internal expertise necessary to design a bundled payment episode.

3. Size and diversity of service lines

Bundled payment—like any risk-based payment model—requires spreading risk across a sizeable patient population so one costly outlier will not lead to financial stress. Since Medicare patients comprise, on average 15% to 20% of a nursing facility’s volume, many providers will simply not have enough Medicare volume to enter risk-based contracts. A payment bundle will target a subset of your patient population and within that population exclusion criteria may apply to even further reduce eligible patients. Under bundled payment your organization will have a set amount of funds for each patient and one high-cost outlier in a small group of patients could potentially be a financial loss under bundled payment.

In order to determine whether your organization has sufficient volume, start tracking the working Medicare Severity Diagnosis Related Group (MS-DRG) for all patients admitted to skilled care at your facility. This will provide a sense of which MS-DRG groupings you have adequate volumes of to consider accepting risk for and help define the target population for a potential bundle. A list of the MS-DRG groupings for common payment bundles is provided in the following table.

In addition to patient volumes, diversity of services is also essential. A substantial amount of cost savings within a post-acute episode of care comes from shifting patients to less-costly care settings. For example, BayState Health—a health system in Springfield, Massachusetts—implemented a payment bundle for joint replacements with the majority of savings coming from discharging patients to home health rather than a nursing facility. Having the ability to do that within your own organization, so you can capture the savings directly, is highly valuable and will lend your team greater creativity when redesigning care episodes to determine the most clinically appropriate care setting for patients.

If your organization does not own the entire post-acute continuum, this is by no means a deal breaker. Rather, it is an opportunity to form partnerships with complementary post-acute providers and jointly apply in the next round of the BPCI initiative and related initiatives.

Bundled Payment Status

Currently, CMMI is in the final stages of negotiation with the BCPI awardees and they are negotiating standardization of bundles and pricing. CMMI announcements of awardees are anticipated very soon.

It is also widely anticipated that CMMI will release four additional models under a second round of the BPCI initiative later in 2013, building upon the learnings from the first round.

Finally, the Affordable Care Act (ACA) also created the National Pilot Program on Payment Bundling, which was to be launched by January 1, 2013. The statute specified that care episodes include 30 days of Medicare reimbursed care following a discharge, bringing post acute care into the provider mix for this national pilot. Details about this pilot, including the procedures and conceptions to be included and actual timeline for launch are not known at this time.

Providers should expect continued momentum towards testing bundled payment approaches to providing care over a defined episode, which will include additional Medicare pilots, as well as private payor arrangements throughout the country.

Moving forward

In the next paper in this series, HDG will explore initial steps organizations can take today so they can hit the ground running when CMMI releases the second round of applications for the BPCI initiative. Recommendations range from analyzing your patient population by disease state to establishing a patient-level cost tracking system and educating staff. Such steps will ensure organizations understand where to focus their attention and have widespread internal support once CMMI releases guidance on round two.

We look forward to collaborating with you on this exciting aspect of payment and care delivery reform! For more information about bundled payment contracts or health care reform readiness in general, please contact Jade Gong, at jadeg@hdgi1.com.

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