Sarah Gabriel, Financial Leadership Council
If you're like most health systems, you're probably facing unprecedented and permanent margin pressures, which, if not addressed, will likely cause unsustainable losses within the next several years.
Although you should focus on a variety of levers to minimize losses—such as revenue and capacity improvements, and case mix management—the most important step to staying in the black is reducing cost growth. All too aware of these realities, finance leaders are increasingly focusing on articulating ambitious cost reduction goals and launching initiatives to instill accountability for business performance across their health systems.
To help with these efforts, here's an example of how one institution achieved $150 million in labor savings over three years—partly due to their substantial investment in two teams that work to better equip their managers to meet performance goals.
The Banner Health model
Banner Health, a 23-hospital health system headquartered in Phoenix, Arizona, is an excellent example of an organization focused on surviving (and thriving) in this environment.
Banner has targeted a 5% margin on Medicare by 2014 from a -10% Medicare margin in 2010. To achieve this goal, leaders at Banner created two new teams and launched a system-wide margin management initiative that requires operating units across the system to meet demanding productivity targets and holds managers accountable for their performance.
How one system is using two teams to reach a 5% Medicare margin
Many health system leaders have been keenly watching developments in Bundled Payments for Care Improvement (BPCI), an initiative from the Center for Medicare and Medicaid Innovation that will reimburse whole episodes of care at a single price.
BPCI initially invited applicants to propose their own bundles, including which clinical conditions, post-acute services, and post-discharge periods would be covered. But in September, CMMI changed course and instead provided a limited set of standardized bundles that providers can choose to pursue.
Reactions across the industry
We have heard mixed reactions from applicants about these changes. One hospital executive we spoke with recently felt that Medicare had “pulled the rug out” from under them: his institution had gone to significant effort and expense to design bundles, only to have CMMI ultimately mandate its own set of bundles available to providers.
Many other health system leaders we have spoken with have been more reserved, having expected that CMMI would standardize bundles in the interest of operational feasibility. Our anecdotal sense is that most candidate awardees will proceed with BPCI as long as the price targets that CMMI proposes are close to what they expect.
CMMI rolling out details
Over the past few months, CMMI has been announcing new details about the rules for BPCI through a series of webconferences. Yesterday’s call brought some new and, in our view, significant updates to the program—many of which will likely please participating providers.
Much to its credit, CMMI seems to be responding to concerns from providers that the new direction of the BPCI initiative exposes them to greater risk and does not allow sufficient time to analyze data before determining whether to proceed. CMMI continues to seek provider input on pricing and operational mechanics, which have not yet been finalized.
CMMI announces trial period, limited-risk option for bundled payments
Several weeks ago, in an unexpected twist, the Center for Medicare and Medicaid Innovation (CMMI) announced that it would “converge” proposals for its Bundled Payments for Care Improvement (BPCI) initiative and offer a limited set of bundle definitions that participants could pursue.
The episode definitions—which specify covered DRGs, eligible post-acute services, and episode lengths—would take the place of bundles proposed by applicants. In effect, to reduce operational complexity, providers will see a significant reduction in the flexibility of bundle definitions.
Since that news, CMMI has undertaken a technical review process to identify candidate awardees, with most—if not all—having already been notified by this point.
Our early read on the BPCI updates
Over the past two days, CMMI has shared its preliminary bundle definitions with participants, identifying the clinical conditions that can be bundled under the BPCI initiative and offering glimpses into CMMI’s broader strategy for bundled payment. Based on our involvement with a number of hospitals and health systems that are participating in the BPCI process, we have compiled several insights from CMMI’s recent guidance:
- Participating health systems can select among 48 different bundles covering medical and surgical cases. In total, the DRGs included in these bundles account for 70% of Medicare admissions.
- There are very limited exclusions for unrelated post-acute care and readmissions. Providers are at risk for all medical readmissions and some surgical readmissions. For models that include post-discharge care, providers are responsible for all Part A services and many Part B services for at least 30 days.
- CMMI will limit the allowed length of post-acute care covered under a bundle; providers can propose 30, 60, or 90 days, but CMMI might allow only one or two of these for certain bundles. CMMI has clarified the expected discount to Medicare for participating providers.
This week’s news is also interesting for what it might indicate about CMMI’s goals for bundled payment.
In the announcements of the past two days, CMMI has emphasized its desire to test and learn from as wide a variety of bundles (by clinical condition and length) as possible, with a particular interest in exploring the viability of medical bundles, which to our knowledge have not been implemented in meaningful numbers around the country. The bundle definitions proposed this week cover the majority of annual Medicare admissions, perhaps setting the stage for a broader rollout of bundled payment in the future.
CMMI bundled payment update: Less flexibility, more risk