One of the hottest topics in healthcare today is value-based reimbursement. A significant starting block for many organizations is “bundled payments”.
“Bundled payments” is not a new idea, introduced as early as 1984, when The Texas Heart Institute began to charge a single flat fee for both hospital and physician services for cardiovascular surgeries.
The idea today is the same as it was then, by providers working and incorporating closer coordination of care quality and outcomes can improve while lowering overall cost.
Still, there are many reasons bundled payments have not been popular in the past centering on a number of critical questions such as:
1. What entity is taking risk for the expense of an unanticipated outcome? The hospital, the physicians, or the health plan;
2. How gains and losses should be distributed;
3. And the ability of the health plan to properly adjudicate the event.
However, recently spurred by the Center for Medicare and Medicaid Service’s (“CMS”) Bundled Payment Care Improvement (“BPCI”) initiative, the idea of bundled payments has again found traction for both governmental and commercial payers.
Today, bundled payments are being rolled out for any number of episodes of care. There are bundles for everything from cardiac thoracic surgery, to OB deliveries to colonoscopies. The steps involved in the development of a bundled payment are similar from one bundle to the next and are briefly outlined below. For many, total joint replacement (“TJR”) is an episode of care that has many components, offering multiple opportunities for clinical improvement and cost savings, and a great place to start with bundled payments. Therefore, the outline that follows will focus around TJR, however, the ideas may easily be adopted to fit any bundle.
STEP 1 – ESTABLISH A COMMITTEE OR WORK GROUP
By definition, a bundled payment is receiving one payment for all, or most, services involved in a specific episode of care. Also, as the goal will be to improve quality and lower overall cost, it is important to include any and all stakeholders in the development of the bundle. IMCS believes that it is best to bring this committee together sooner rather than later in the process. It is best to “get the ball rolling” and the ideas flowing quickly. The committee should be comprised of as many participants, as you need, and as few as you can get by with.
At the heart of the committee is normally a physician champion from the specialty most represented by the bundle. In this example of TJR that is an orthopedic surgeon. Depending on the size of the medical community and the number of groups practicing in the primary specialty, there may be more than one physician representative. Multiple physician representatives can be a good element providing a consensus agreement as to such things as which prosthetic will be used in the procedure. Again, it is important to keep your committee only as big as you need it to be.
Other candidate considerations will be the administrator of the physician group(s), representatives from the hospital, including, finance, decision support, operating room services, material management and others. In many bundles, an outside physician representative, such as the hospital chief medical officer or chairman of the medical staff, can be helpful. This individual can often offer insight from an outsider’s perspective that may be overlooked by those who see the same things over and over again on a daily basis. This individual may also be able to offer solutions when there are differing clinical opinions that must be agreed upon. There will also need to be a representative to chair the committee, coordinate the analysis to be performed as well as other duties.
STEP 2 – DEFINE THE BUNDLES
This step may appear obvious. However, as with anything, the devil is in the details. It is not enough to say that any and all procedures under DRG 469 and 470 qualify for a bundled payment. It is equally important to identify the exceptions to the bundled paymentas what qualifies for a bundled payment. Further, in order for the payer to identify an episode as a bundle, or an exception, these definitions must be able to be captured on a CMS 1500 or UB02 claim form. There may be hundreds or even thousands of ICD-10 codes to define when a bundle is triggered and just as many, or more, to trigger an exception. Exceptions may include, but not be limited to, such things as co-morbidities or specific occurrences during the time period included in the bundle. The research and the detail could be exhausting. However, there may be a silver lining for many organizations.
CMS, and most commercial payers working with bundles, will already have a specific definition of what constitutes a bundle as well as the exceptions. Most organizations will be required to work within a payer’s definitions be the payer commercial or governmental. Few healthcare systems have the leverage to convince their local Blue Cross carrier to change the programming to fit the provider’s definition of a specific bundle. Unfortunately, this also means that the providers may be subject to differing definitions based on the individual payer. The good news may be that as with many programs, payers tend to drift toward the Medicare definitions.
STEP 3 – DEVELOPMENT OF A REQUEST FOR INFORMATION
In today’s world, data is king and there is nowhere that is more visible than in bundled payments. The committee will need to identify all of the providers, materials and other costs involved in the bundle and gather information from all of them. There will likely be multiple requests for Information (“RFI’s) for the different provider groups included in the bundle. Gathering data from both the physician groups and the hospital is important particularly if the physician providers go to multiple facilities. Below is sample list of items that might be included in the RFI’s:
1. Listing of providers, including physician extenders and hospital based physician groups;
2. Historical volumes from the physician providers and the facility;
3. Payer mix from the physician providers and the facility;
4. Capacity for both the physician group and the facility;
5. Post-acute care organizations in the area such as rehabilitation and home health agencies;
6. Referral volumes;
7. Current quality measures;
8. Current provider reimbursement for all providers included in the bundle;
9. Identification of all supplies utilized in the procedures included in the bundle; and
10. Current costs for all providers included in the bundle.
The coordinator for the committee will need to be sure that the RFI’s are distributed to the appropriate parties and proper follow up is performed in order to keep the process moving. All too often projects like this can take on a life of their own in a system and are never completed. It is imperative to keep strict deadlines and maintain interest, even if the bundle is not utilized immediately. It is important to have the work completed so that when the opportunity arises; the organizations can take advantage of any and every opportunity.
STEP 4 – DEFINE THE PROCESS
This is a critical piece in developing the bundle. Using the data gathered in step 3; mapping while working with the committee, combined with actual onsite observation, all current processes and procedures are mapped. It is then possible to create a baseline that will accurately delineate where better outcomes and lower costs can be identified. Included here will be the determination of quality metrics to be used, both process metrics and outcome metrics. It is also at this point in the process where the development of payer cost, and provider cost is defined, and the “Time-Driven Activity Based Costing” metrics will be developed and utilized moving forward. The goal is to develop a cost per minute for the bundle. Some hospital systems may have this within their cost accounting package, however, because much of the hospital costing is based on broad allocations of fixed expenses, many systems may not possess the detail costing procedure this analysis will entail.
It is imperative that the analyst have the tools and ability to present this data in sufficient detail for the committee members to be able to understand the data and seek recommendations for improvement, but not get lost in the minutia of the process. Many times software systems are evaluated and purchased to assist in this ongoing process.
The committee can then utilize this data, as well as drawing on their personal knowledge and experiences, to refine and improve the process for greater cost efficiencies and better outcomes.
STEP 5 – PRICING THE BUNDLE
The analysis is now complete. With your provider cost and the cost to the payer clearly defined as well as efficiencies identified, it is time to price the bundle. This is the product that you will present to the payers. There are still questions to be answered in this step.
In order to bring interest to a payer, you will need to offer the product (in this case a bundle) at a “lower” overall price than what the payer is paying currently. As a first step, you may need to reconcile with the payer in order for both parties to agree on what is currently being spent.
Other matters of consideration include the following:
What entity(ies) is/are willing to accept lower per procedure reimbursement: A factor that will require consideration is how much of a cut in reimbursement will each of the parties accept who are involved in the bundle? Only entities (physician groups or facilities), who have an opportunity to realize greater profit through increased utilization, or gain sharing (discussed in more detail below) as a result of the bundle, will be willing to take a reduction in the per procedure reimbursement.
How much risk will be assumed: An underlying assumption in developing a bundled payment is that, over time, a greater amount of risk will be assumed by the providers. As described above, there is the initial risk assumed by the provider of lowering per procedure reimbursement from the payer, there by setting the new lower level for all future reimbursements.
Initially, there may be no additional risk, other than the lower reimbursement, but the payer will work with the providers by supplying supporting documentation comparing the amount paid to what has historically been paid or what is paid compared to other entities in their specific geographical area.
As the process evolves, providers often move to an upside only risk. In this model, there may be a target number established, through negotiation between payer and provider. If the bundle has an overall lower reimbursement than the target, the savings will be split between the payer and the provider. If the cost is greater, the provider does not have to make up the loss. Ultimately the idea is for the provider to assume full risk for the patients who fall under the bundle. In this model, the provider shares in both the benefit of reimbursement below the target, as well as assuming the cost when the reimbursement exceeds the targeted amount. (The total target reimbursement and distributions between payer and providers are negotiable with commercial payers.)
How will gains and losses be distributed: Gain sharing and full risk models can be very rewarding, but there must be a predetermined mechanism to distribute any gains, and the more dicey conversation of bundle development–Who will bear the risk for cases that have gone financially bad? There are an endless number of formulas to distribute gains and losses. Not only should the financials be taken into account, but the quality metrics as well. If a group is achieving lower reimbursements because they are not supplying, what is deemed by the payer as essential services for the bundle, the payer may not be willing to distribute excesses at all. (These criteria are also negotiable among commercial payers.) Both process metrics, as well as outcome metrics, should be considered and negotiated.
Which providers share in the gains and losses must be established before the first bundle is in place. What system will be used? Will it be a predetermined percentage or dollar amount for specific groups? If there are losses, should the party responsible take the all of the financial loss or a perhaps a greater portion of the total loss? If so, will the responsible party be determined by ICD-10 code or another methodology?
STEP 6 – ONGOING ANALYSIS AND IMPROVEMENT
The analysis and development of a bundled payment does not stop with the first signed agreement with a payer. There should be ongoing discussions and an in- depth analysis of the procedures bundled as new techniques are presented and new ideas incorporated.
Once the bar is set, the committee should continue to challenge the providers to continue to provide higher quality care at lower costs. A continuing effort can assist in commercial payers steering or sending more cases to your organization as you continue to show higher quality and lower costs.
Bundled payments are complex mechanisms. They require multiple entities to work together who have not traditionally worked in concert with one another. While the outline above is an overview, the details can be quite intense.
For public speaking engagements or questions regarding this or other revenue cycle issues, contact Innovative Managed Care Solutions, LLC at: information@imcsllc.net, or see our website at: IMCS Innovative Managed Care Solutions.
Published on August 1, 2017
–John Collier & Kim Michael–
JOHN COLLIER (author) is the founder and CEO of IMCS (Innovative Managed Care Solutions, LLC), an organization dedicated to the enhancement of provider profitability through professional contracting, and the development of value-based bundle payment strategies.
KIM MICHAEL (co-author) is a thirty-five year veteran of the healthcare industry and business development. He is also the national author of numerous articles on business on development.