3 Challenges Providers Face with Healthcare Bundled Payments

July 20, 2017 - Healthcare bundled payments are becoming one of the most popular alternative payment models available to providers. Providers are drawn to the episode-based structure’s ability to decrease healthcare costs while maintaining or improving care quality, but they still face many challenges with achieving financial success.

The bundled payment model requires providers to swap their fee-for-service processes for more coordinated, team-based care. The alternative payment model also calls on providers to gather care quality and cost data from across the care continuum to develop appropriate care pathways for episodes.

However, overcoming bundled payments challenges may realize substantial benefits for providers. One health system in Texas realized almost $6.1 million in healthcare cost savings after adopting a joint replacement surgery bundled payment.

Providers are also seeing care quality improvements. A recent study of the Medicare Comprehensive Care for Joint Replacement program revealed that participating providers decreased expensive hospital admissions by 1.4 percent and emergency department visits by nearly 1 percent. Care episodes with prolonged lengths of stay also dropped by 67 percent.

The journey to healthcare cost savings and improved patient outcomes may not be smooth for providers on the bundled payments path.

READ MORE: Bundled Payments Rely on Robust Networks, Healthcare Markets

What are the top challenges provider organizations typically experience when implementing healthcare bundled payments and how can they overcome the obstacles to achieve financial goals?

Achieving economies of scale for bundled payments success

The issue is scale is critical for providers seeking financial gains from healthcare bundled payments. Similar to fee-for-service payment models, providers generate profit from treating high volumes of the procedures or conditions targeted in the bundled payment model because providers receive a fixed payment per bundled patient.

However, providers have struggled with achieving the appropriate scale of procedures performed or conditions treated. A PricewaterhouseCoopers Strategy& survey found that most (42 percent) of providers and hospital leaders ranked scaling the number of procedures or conditions as their top bundled payment challenge.

The second most common hurdle the providers and hospital leaders faced was scaling the number of facilities or locations. Not only do providers need to up their patient volumes to realize financial success, but they need enough facilities across the care continuum to manage a patient as the care episode progresses.

“Scaling up — along multiple dimensions — will be a major challenge to those currently implementing bundles (and those that eventually follow),” researcher wrote. “Scaling up includes increasing the percentage of patients using a specific bundle, adding additional bundle sets, pushing the beginning and end points on the spectrum of care, extending the facilities and geographies where the bundles are available, and expanding the number and scope of partnerships through which the bundles are marketed and delivered.”

READ MORE: Key Considerations for Bundled Payment Model Adoption, Success

To boost patient volume and facilities at the same time, provider organizations may want to consider joining a health system, medical foundation, or clinically integrated network.

However, the integrated network or health system should operate under the same EHR system and include a wide range of specialists, Michael Bark, Assistant Vice President of Payer Relations at Scripps Health recently told RevCycleIntelligence.com.

“When you have a medical foundation environment like we do, you have the right mix of doctors that you need to provide the services,” he said. “You have the integration of all the specialties. If you need any consultations or such you have all that readily available to you and it is all connected within an electronic health record.”

Leveraging post-acute care partnerships to control costs

Healthcare bundled payments expand a provider’s financial accountability to a care episode opposed to a single procedure or visit. An episode’s length can range from a couple of days for a hospitalization to 90 days post-discharge or longer for condition-based bundles.

With revenue on the line for 90 days or more after a procedure or diagnosis, post-acute care quality and costs may impact bundled payments success. Partnering with low-value post-acute care facilities could jeopardize potential cost savings under the alternative payment model.

READ MORE: Understanding the Value-Based Reimbursement Model Landscape

However, identifying high-value partners may be a challenge for providers. Care quality and healthcare costs significantly vary by facility and market.

A recent Medical Care study showed that post-acute care costs dramatically differed by healthcare market in which bundled payments existed. Post-acute care costs varied 4.8-fold for hip replacement episodes and 4.3-fold for knee replacement episodes.

Care quality variations also existed among post-acute care facilities, according to a New England Journal of Medicine report. Top-performing skilled nursing facilities averaged a length of stay for Medicare beneficiaries of fewer than 24 days, while low-performing facilities had an average of over 34 days.

In addition, providers may not have access to reliable post-acute care data. The information has historically been limited or unavailable and Medicare Star Ratings only offer some post-acute care data that is usually dated, Deloitte recently reported.

Interviewed healthcare executives in the Deloitte report also reported that health plans typically did not share post-acute care performance data with their provider organizations.

Providers can overcome the challenges by using other data sources to identify high-value post-acute care partners, Deloitte researchers added. The data sources include:

• CMS claims data through an alternative payment model, such as the Bundled Payments for Care Improvement initiative

• Health system data on their hospital’s readmissions by certain post-acute care facilities, conditions, and providers

• Self-reported data from post-acute care facilities, particularly on readmissions and lengths of stay

• Qualitative clinician feedback on their experience with specific facilities

• Medicare Star Ratings

• Commercial claims data on post-acute care quality and cost performance

Researchers also advised provider organizations to consider partnering with post-acute care facilities, rather than acquiring them. Partnerships tend to be more affordable and faster to implement. By partnering with the facilities, organizations can also focus on their own business operations while leveraging post-acute care resources.

Providers can partner with post-acute care facilities by either entering joint venture partnerships in which both organizations invest capital and collaborate on business operations or leasing beds from post-acute care facilities.

Developing a preferred network for referrals is another option for providers. Through the network, provider organizations informally partner with a limited group of post-acute facilities for referrals and the organizations share data, staff, and health IT systems.

Managing healthcare costs beyond the provider’s control

While providers should cultivate post-acute care partnerships to control costs outside of their facility’s walls, they also have to deal with unexpected spending within their patient groups and organization.

Medication adherence and complications are key factors that may lead to adverse and expensive healthcare events. Providers cannot always predict if a patient will adhere to their care plan or experience side effects of a prescribed drug.

“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,” explained Joshua Cohen, PhD, Research Associate Professor of Medicine at Tufts Medical Center in an article for the American Journal of Managed Care.

“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.”

Providers can mitigate financial risks of unexpected, expensive healthcare events by defining their bundled payments. When contracting with payers, providers should avoid care episodes that frequently involve patients with co-morbidities or complex surgical procedures because these groups have greater levels of patient outcome and cost variability, the California Orthopaedic Association advised.  

Bundled payments are better suited for procedures or conditions for which evidence-based care pathways exist.

Providers should also ensure that they clearly define what constitutes a related hospital admission. Payers may consider all hospital readmissions as incurring costs under the bundled payment model even if they are not related to the procedure or surgery.

Additionally, providers should include outlier provisions in their bundled payment contracts, suggested Michael Ciarametaro, the Director of Research at the National Pharmaceutical Council in 2016.

“The last thing is outliers,” he stated. “You’re always going to have outliers and those cases that are catastrophic. There needs to be a process in place to deal with that.”

To manage outlier cases, providers can also establish care protocols to handle medically complex patients while maintaining cost efficiency.

Recent CMS delays to bundled payment implementation may have signaled some providers to hold back on participating in the alternative payment model. But experts agree that the episode-based reimbursement structure is here to stay and providers should prepare their organizations for more robust participation.

Understanding the common challenges providers face with healthcare bundled payments should put them in a better position to realize healthcare cost savings and generate a profit from the model.