Healthcare bundled payments are a value-based reimbursement model that uses a single, comprehensive payment to address an entire defined episode of care. This alternative payment model has become a critical stepping stone for providers as they explore risk-based purchasing.
Unlike other common alternative payment models, such as accountable care organizations (ACOs) and capitation, bundled payments impose clinical and financial responsibility on providers for a single care episode for an individual rather than the ongoing outcomes of an entire patient population.
If total care costs for the episode are below the bundled payment reimbursement, providers generate a profit. However, if total costs exceed the bundled payment amount, providers incur a financial loss.
Additionally, providers may earn value-based incentive payments under bundled payment models without adding excessive financial risk.
Bundled payment models also present more of an opportunity for specialists to engage in value-based reimbursement structures. Alternative payment models like the ACO tend to emphasize the primary care provider’s role in reducing costs and advancing care quality, which often excludes specialists and surgeons who may not have ongoing relationships with their patients.
For example, Medicare’s Acute Myocardial Infarction (AMI) model caters to cardiologists and surgeons and the Comprehensive Care for Joint Replacement (CJR) model addresses the role of orthopedic specialists.
The bundled payment strategy has already produced cost savings for providers and payers.
Spending on lower extremity joint replacements fell by $1,166 per episode under the Medicare Bundled Payments for Care Improvement (BPCI) initiative, according to a Journal of the American Medical Association study.
A study in Evidence-Based Oncology also showed that oncology-specific bundled payment models reduced emergency department visits by 30 percent and inpatient days by 17 percent. The models also stabilized prescription drug spending at hospitals after a historic increase between 15 and 18 percent per year.
In addition to spending and quality improvements, providers who participate in certain Medicare bundled payment models may qualify for maximum incentive payments under MACRA’s Quality Payment Program.
CMS approved several bundled payment models, such as the Oncology Care Model and Comprehensive Care for Joint Replacement program, as Advanced Alternative Payment Models, which include an automatic 5 percent incentive payment for sufficient participation in 2017.
The federal agency also announced its intention to add new bundled payment models to the Quality Payment Program track.
While bundled payments have quickly become popular, it is not always easy for providers to keep costs contained while maintaining optimal care quality. As organizations continue to embrace an episodic payment structure, they should be aware of the key challenges of the model and the top strategies for financial success.
Anticipating unexpected costs
Bundled payments aim to reduce healthcare costs while maintaining - or ideally improving - care quality. However, achieving this goal may be easier said than done for many providers.
Managing uncontrollable or unforeseeable healthcare costs is a top challenge that providers face when implementing bundled payment models, especially after discharging patients from their direct care. Unexpected complications, failure to follow discharge instructions, or even an accident at home can jeopardize a provider’s chances of coming under the payment cap.
"Sometimes they are things that can be controlled by the provider. And sometimes, you can’t even tell. That’s what really makes things complicated.”
Even for relatively well-defined procedures, such as joint replacements, bundled payments with a high risk of complications may not be the best financial path forward for providers, cautions Joshua T. Cohen, PhD, research associate professor of medicine at Tufts Medical Center.
“There are situations where using a bundle may be inappropriate because the factors that are influencing differences in cost among patients are things that the provider doesn’t actually control,” he said
“For example, you might have a range of patients who have different comorbidities, and some of them are very high risk, and hence would be expensive and that’s not the fault of the provider. And sometimes they are things that can be controlled by the provider. And sometimes, you can’t even tell. That’s what really makes things complicated.”
To address uncontrollable patient costs, providers should leverage patient risk stratification techniques to identify high-cost patients who may threaten bundled payment savings. Robust risk stratification tools should help bundlers appropriately allocate resources to high-risk, high-need patients to prevent costly adverse events.
“Hospitals have to understand the risk for those patients who are likely to have poor outcomes and they’re going to have to allocate resources more precisely to mitigate risk."
For example, hospitals cannot afford to give the same level of high-intensity care management both within the hospital and during the post-discharge period to every patient, Susan Nedza, MD, former CMS Chief Medical Officer of Region V and current Senior Vice President of Clinical Outcomes at MPA Healthcare Solutions, explained in March 2016.
“[Hospitals] have to recognize risk on the front end when they’re assessing patients for acute care services or elective surgery,” she said. “Hospitals have to understand the risk for those patients who are likely to have poor outcomes and they’re going to have to allocate resources more precisely to mitigate risk based on that patient’s needs – not based on the fact that they’re simply undergoing a hip replacement.”
Providers should start by assessing clinical and financial risk prior to admitting a patient to determine the types of services needed, potential complications, and various outcomes. Then, they should reevaluate patient risk levels during care transitions.
“At the key transition point – transition from hospitalizations to post-acute care – the risk assessment for that particular patient needs to be re-evaluated to determine if they need an additional level of services because things happened that were unexpected,” Nedza stated. “The opposite is as important if they did better than expected: the hospital could choose to provide fewer resources to them in the post-acute care setting.”
Investing in patient engagement
Improving patient engagement is another key step for managing healthcare costs under a bundle arrangement. Opening communication with patients is crucial to preventing uncontrollable healthcare costs.
Patients should be on board with a provider’s clinical and financial goals under healthcare bundled payments, recently stated Robert Raspa, PA-C, OrthoCarolina’s Coordinated Care Manager.
For their bundled payment models, OrthoCarolina uses patient navigators to boost engagement and guide patients through the bundle.
“The navigator is essentially the personal concierge or travel agent for the patient and they do everything from the initial reach-out to the patient to explain all of the great benefits of being in a bundle, which includes having a navigator,” explained Raspa. “The navigator will then walk them through what an episode of care will include.”
“By keeping a tight clinical eye on the patient, we can continue to help reduce unnecessary spending. That’s key, and so is the communication from the patient back to us.”
Referring patients to high-quality business partners
Providers can retain financial responsibility under bundled payment models for 90 days or more after discharging their patient. Therefore, referring the patient to high-quality and cost-efficient post-acute care providers is an important factor of bundled payment success.
However, finding appropriate post-acute care partners may be difficult for providers, especially since the space experiences significant care and cost variations.
A recent Medical Care study found that procedure costs for providers participating in a joint replacement bundled payment model were similar across healthcare markets. But post-acute care costs varied by about 5-fold for hip replacements and roughly 4-fold for knee replacements.
Care delivery and quality also significantly vary by post-acute care provider. For example, top-performing skilled nursing facilities had an average Medicare length of stay of fewer than 24 days, whereas low-performing facilities averaged over 34 days, a New England Journal of Medicine study showed.
The difference in length of stay translated to a $4,000 cost disparity per admission.
Similarly, a 2016 Medicare Payment Advisory Commission report found that potentially avoidable readmission rates varied substantially among post-acute care providers. The 25th percentile of skilled nursing facilities had a 7.8 percent rate of avoidable readmissions. In contrast, the 75th percentile had a 13.6 percent rate.
“By keeping a tight clinical eye on the patient, we can continue to help reduce unnecessary spending."
Historically, providers have had limited access to post-acute care quality data that can be used to identify high-value partners, explained Deloitte in a recent report. Even though Medicare provides care quality information on post-acute care providers via the Star Ratings website, the information is usually outdated.
CMS also shares data with bundled payment model participants, but the information is often delayed and limited in detail, the industry group wrote in another report. Providers typically must “slice and dice” the data themselves in order to gain insights.
Thirty-six healthcare executives interviewed for the report also explained that health plans traditionally do not share post-acute care performance data with providers.
Bundlers can overcome post-acute care challenges by developing a narrow network of providers that encompasses a wide range of provider types.
By engaging providers across the care continuum, organizations can refer their patients to high-quality, cost-efficient physicians for post-discharge care rather than relying on patients to the select appropriate care setting.
As part of a robust provider network, healthcare organizations should carve out a space for high-value post-acute care partnerships.
While reliable post-acute care data may be hard to come by, Deloitte researchers identified the following data sources that providers can use to identify high-quality, cost-efficient providers:
- CMS claims data provided through an alternative payment model, such as the Medicare Shared Savings Program or the Bundled Payments for Care Improvement initiative
- Health system data on hospital readmissions by specific post-acute care facility, condition, and provider
- Self-reported data from post-acute care providers, particularly on lengths of stay and hospital readmissions
- Qualitative clinician feedback on their experience with specific facilities, usually found through a health system
- Commercial claims data on cost and performance when available
Using this information, providers should select post-acute care providers that demonstrate similar values, such as cost efficiency and high-quality care.
Leveraging data analytics to access actionable insights
In addition to the challenges of accessing reliable data on post-acute care, providers may also struggle to glean actionable insights from their own quality and performance datasets.
“When healthcare organizations begin their bundling initiatives, one of the biggest unknowns is how the money will flow and whether or not their investment will pay off in the long term,” Deloitte researchers stated. “It is challenging to track patients in real time in order to influence care.”
Healthcare organizations may not have the appropriate health IT and data analytics systems in place to track episode costs, especially once the patient is discharged to other care settings.
“When healthcare organizations begin their bundling initiatives, one of the biggest unknowns is how the money will flow and whether or not their investment will pay off in the long term."
The lack of infrastructure and data caused one healthcare executive to tell Deloitte researchers that succeeding in bundled payments is like “trying to hit an unknown, unpredictable target.”
Payers agree that their provider partners often struggle with understanding how to position themselves for success.
“There are obvious challenges that come with making such a big transition,” acknowledged Chip Howard, Vice President of Payment Innovation at Humana. “A couple of challenges include infrastructure, data, and reporting that, frankly, were not needed in the fee-for-service world. Providers absolutely have to have that to be successful in the value-based world.”
Payers should also work to share timely data and reports with providers to ensure both parties share in cost savings.
“Producing a robust set of reports and data for the providers to be able to show them there are opportunities for quality improvement, outcome improvement and cost efficiencies [is key],” Howard added.
In addition to payer support, Deloitte advised healthcare organizations to invest in predictive analytics solutions. Predictive analytics tools can help providers identify high-cost patients as well as estimate care episode costs.
“When we’re looking at this information, we can start to look at what’s driving the variability and utilization patterns in an episode."
At the Cleveland Clinic’s Heart and Vascular Institute, big data analytics helped to pinpoint potential care variations and utilization patterns that could undermine bundled payment success, stated Joseph Cacchione, MD, the institute’s Chair of Operations and Strategy.
“When we’re looking at this information, we can start to look at what’s driving the variability and utilization patterns in an episode,” he said. “For example, why are we doing so many echocardiograms after a certain cardiac procedure? Are there clinical factors involved with that, or are they non-clinical factors?”
“You can start drawing conclusions about how many echocardiograms are really necessary in an episode period. It could be that the tests were clinically indicated, and we need to know what those clinical parameters are. Or is there some other motive for ordering the echocardiogram? Maybe a doctor has a new echocardiogram machine and he needs to pay for it.”
The predictive analytics approach also enabled Cleveland Clinic to create a complete and real-time data set, rather than relying on historical claims and administrative data.
Leveraging data analytics alongside improved patient engagement, strong business partnerships, and risk stratification can help providers develop bundled payment models that address the major challenges associated with the episodic payment structure and incorporate key strategies for cost savings.
“Remember that [patient care under bundled payments] is a continuum,” said Raspa. “It’s not just between the payer and us. It’s the payer, us, the patient, the hospital, rehab, durable medical equipment suppliers, and everyone who is included.”
“As long as we’re aligning incentives for everyone – the payers, the providers, and the patients – to achieve those goals of quality, cost, and outcomes, that’s how you have to figure it out. That’s your strategy.”