Hospitalization-Based Bundled Payment Models Key to Lowering Costs

June 04, 2018 - Bundled payment models should center on acute hospitalizations, rather than outpatient care, because hospitalization-based bundles can more effectively impact post-acute care (PAC) spending, industry experts from the USC-Brookings Schaeffer Initiative for Health Policy recently contended.

“Hospitalization-based bundling offers a significant opportunity for improved performance within the healthcare system, especially for episodes for which a substantial share of the care associated with an episode is typically delivered after the hospitalization, particularly at PAC facilities,” wrote John A. Romley, Visiting Associate Professor at the Schaeffer Center for Health Policy & Economics at the University of Southern California, and Paul B. Ginsburg, Director of the Center for Health Policy at the USC-Brookings Schaeffer Initiative for Health Policy.

“In this situation there is ample scope for more effectively coordinating ─ and even redesigning ─ the delivery of care episodes across providers, and the transition from hospitals to PAC and other providers is critical to system performance and likely to be managed most effectively by hospitals and physicians providing inpatient care.”

Bundled payment models rely on care episodes triggered by either a specific treatment or condition, such as a coronary artery bypass graft surgery or joint replacement surgery.

As medicine improves, delivery of certain procedures, like joint replacements, are shifting to the outpatient setting. Outpatient organizations or departments offer a lower cost alternative, oftentimes at comparable or improved care quality.

READ MORE: Key Strategies for Succeeding with Healthcare Bundled Payments

With care shifting outside of the hospital, bundled payment models are adapting to different care delivery models.

However, Romley and Ginsburg argued that bolstering hospitalization-based bundled payment models is the key to truly reducing healthcare costs. Hospitals managing an episode starting with an acute hospitalization can more effectively manage post-acute care costs, which represent a large portion of overall episode spending under major bundled payment models.

For example, post-discharge and PAC spending accounted for almost one-half and one-quarter, respectively, of total episode spending in the Bundled Payments for Care Improvement Initiative (BPCI), Romley and Ginsburg found using Medicare claims data.

Spending after providers discharge patients from the hospital also substantially varied, they reported. For a double joint replacement of the lower extremity, PAC spending varied from 16.2 percent at the anchor hospital in the 10th percentile of the episode spending distribution to 26.8 percent at the 90th percentile.

The results demonstrate how PAC spending is a major opportunity for improved bundled payment model performance.

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“Hence, episodes that typically involve more services post-discharge, and PAC in particular, may provide greater opportunities for improved performance,” they argued. “These episode types are likely to have relatively broad scope for coordinating and even redesigning the delivery of care across providers, with an emphasis on the utilization of a cost-efficient mix of services.”

Using an acute hospitalization as a triggering event for a bundled payment model is also beneficial because of a hospital’s ability to share financial risk with Medicare or other payers. Smaller provider organizations may not be in the financial position to assume risk.

In addition, an outpatient care event is not the ideal triggering event for a bundled payment episode, the experts argued.

“[E]pisodes that incorporate outpatient care prior to any admission may need to be more customized, for example, with respect to the services that trigger an episode; such complexity would tend to increase the cost of developing a payment model,” Romley and Ginsburg wrote.

“Some surgeries can be performed on an outpatient basis, and in these circumstances an episode might be triggered by ambulatory surgery. Accounting for differences in patient severity across ambulatory and inpatient settings could be highly challenging.”

READ MORE: Bundled Payment Models Here to Stay Despite CMS Program Delays

While hospitalization-based bundled payment models are critical to reducing costs, CMS and other stakeholders still need to adjust payments for patient severity to ensure hospitals succeed under the alternative payment models, the industry experts added.

Patient characteristics and severity significantly impact episode costs. An analysis of administrative records and Medicare claims uncovered that patient characteristics explained 12 percent of the variation in total payment across hospitals in the BPCI.

For some episodes, a single characteristic even accounted for payment variation. For example, being 75 years or older explained 10.3 percent of cross-hospital differences in payment for cervical spinal fusions, and 38.4 percent of all the variation explained by patient demographics, Romley and Ginsburg reported.

Hierarchical Condition Category (HCC) scores, which track patient severity, also accounted for 22 percent of the variation in total payments across hospitals per episode in the BPCI, the analysis revealed.

To illustrate how patient severity impacts bundled payments, Romley and Ginsburg found that a hospital in the 10th percentile of the severity distribution would have received $2,600 more per patient than was needed if the hospital received bundled payments based on 2012 Medicare claims data.

Conversely, a hospital in the 90th percentile would have seen a payment deficit of 17.7 percent, or $2,400 less than needed.

Despite the impact on bundled payments, the BPCI does not risk-adjust payments and Medicare’s other major program, the Comprehensive Joint Replacement (CJR) model, only adjusts payments based on risk-adjusted quality measures.

“Misalignments between provider payment and patient severity raise concerns as to whether providers have the resources needed to treat patients appropriately,” Romley and Ginsburg wrote. “Indeed, such misalignments can create incentives for providers to avoid beneficiaries who are sicker or costlier, or to skimp on their care.”

“Moreover, equity toward providers is important for the political sustainability of a payment system,” they continued. “Risk adjustment can help to ensure that the desired incentives can be created while minimizing the risk borne by providers.”

The industry experts urged CMS and other stakeholders to consider hospitalization-based bundled payment models with risk-adjusted payments. And the best method for implementing these models is to make them mandatory.

CMS recently canceled the upcoming Episode Payment Models and scaled back the mandatory scope of the CRJ model. The federal agency noted that it will work to create more voluntary bundled payment model options for providers.

However, Romley and Ginsburg argued that compulsory models are more effective at transforming care.

“Such an approach is more effective in sustaining and maximizing the potential of payment and delivery reforms over time, by building the evidence about what works and helping to achieve scale for effective models,” they explained.

Mandatory participation also allows stakeholders to effectively set more appropriate and equitable benchmarks for bundled payment performance, rather than only relying on data from providers who chose to participate.

“Even as CMS develops new approaches to payment and delivery, we believe that hospitalization-based bundles, with appropriate adjustments to payment for patient severity, will continue to offer meaningful opportunities for improved performance within the health system, and we encourage decision makers to make the most of these opportunities by adopting mandatory models that address the needs of both patients and providers,” they concluded.