Blog Post

3 reasons hospitals can't afford to 'take their foot off the gas' on bundled payments

January 22, 2018

    Coming just a few weeks after CMS finalized its decision to roll back mandatory bundles, the agency's announcement of the BPCI Advanced voluntary bundled payment program has reenergized leaders committed to managing episodic costs.

    When we spoke with hospital leaders last fall about the rollback of the Comprehensive Care for Joint Replacement Model (CJR) and cardiac bundles, we often heard sighs of relief that we think were misplaced. While it's understandable that no one wants to hear "mandatory" coming from Washington, D.C.—especially in relation to their job—BPCI Advanced provides a new opportunity for hospital leaders to rally internal stakeholders around managing episodic costs in response to current and future economic forces.

    Register for Tuesday's webconference: Everything you need to know about BPCI Advanced

    Here are three reasons why we think hospitals can't afford to "take their foot off the gas" in regards to focusing on costs across an episode of care:

    1. While some aspects of payment reform have slowed, MACRA and increased scrutiny of health care costs are here to stay

    Every 8 seconds for the next decade, another American will turn 65 and become eligible for Medicare. Most of these seniors will join Medicare FFS and their physicians' payments will be impacted by MACRA/MIPS, where 30% of overall performance will be based on cost performance. CMS's goal is to hold providers accountable for what happens to patients post-discharge: The agency already does so with readmissions penalties for hospitals and is now holding physicians accountable (regardless of whether they participate in a voluntary bundling program) by including episodic costs post-discharge as a component of the Cost category for MIPS.

    And while Medicare has a significant and national impact on payments, episodic-based payment reform is moving much faster than Medicare in some markets. For example, in Hunter's home state of Tennessee, the Medicaid program has launched the "Episodes of Care" model, which lowered episodic costs by $14.5 million in 2016 across just 8 episodes (similar to bundled payments). Next year, Tennessee aims to significantly increase the scope of the program to include 75 different episodes, which will impact hospitals across the state.

    We'd also caution leaders not to think of episodic costs in isolation because what happens after an inpatient episode plays a major role in impacting total cost of care. Organizations that are moving toward downside risk models are likely to suffer million-dollar losses unless they're able to rein in unnecessary utilization of post-acute care and adverse outcomes after discharge (such as readmissions).

    2. Focusing on episodes of care can help align stakeholders around efforts to reduce unwarranted care variation and costs

    While a greater focus on episodes can help mitigate revenue losses, we would argue a greater opportunity comes from savings on direct costs due to a reduction in care variation. The median operating margin for nonprofit hospitals fell by 0.8% in 2016, and a major driver was rising expenses. Leaders should ensure that the rollback of mandatory bundles does not result in a reduced focus on partnering with physicians to improve the quality and efficiency of inpatient care delivery.

    We've found that the formation of a Hospital Efficiency Improvement Program (HEIP) can provide a particularly useful framework for hospitals and independent physicians to come together to focus on reducing unnecessary costs and improving patient care. A HEIP is a contractual arrangement between a health system and physicians that allows them to share direct cost savings generated by performance improvement initiatives. A HEIP allows health systems to engage a broad range of physician specialties in initiatives, such as sepsis reduction, as opposed to a more narrow focus on a single specialty or service line.

    3. Now is the time to build infrastructure and increase alignment between hospitals and physicians

    Health care has always been a "team sport," but as payment reform moves ahead, hospitals and physicians will increasingly be paid based on "team" performance. To improve performance under value-based reimbursement, it is critical to have the appropriate infrastructure in place (IT/analytics, care management, etc.) as well as engaged physicians at the table to provide leadership and drive change in behavior. While the burning platform of mandatory bundles has gone away, we believe MACRA and the general trends in payment reform should compel most health systems to rethink their physician alignment strategy and evaluate whether or not they have the scale and scope to succeed as reimbursement moves away from pure fee-for-service with a greater emphasis on total cost of care and quality measure performance.

    While some organizations are able to achieve necessary scale through physician employment, many are using (or considering using) a Clinically Integrated Network (CIN) to bring independent and health system-employed physicians together to jointly participate in value-based contracts. As the shift toward value-based reimbursement progresses, a CIN provides a platform for aligning hospital and physician incentives to improve quality, lower costs and realize financial returns from population health strategies.

    Avoid the complacency trap

    Even though a "mandatory" focus on bundled payments has been relaxed (for the time being), there is still a compelling financial, strategic, and clinical case to be made for a continued, voluntary focus on episodic costs in both the short and long-term. So now that you've taken that sign of relief, don't be lulled into complacency. Hospitals that develop the relationships, organizational framework, and care delivery model to succeed at managing episodic costs will have a distinct competitive advantage over those that do not.

    If this is a discussion that you'd like to continue at your organization, please reach out to us and we'd be happy to share our point of view.

    Tuesday: What you need to know about BPCI Advanced

    Join Hunter and other Advisory Board experts for a webconference on Tuesday, Jan. 23 about CMS's new a new voluntary bundled payment model, Bundled Payments for Care Improvement Advanced (BPCI Advanced).

    You'll learn about the program’s features, application process, and next steps for determining whether your program should participate.

    Register Now

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