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CMS’ Bundled Payment Craze Hits Traditional Medicare

CMS’ Bundled Payment Craze Hits Traditional Medicare

Strategic Insights writes often about the far-reaching quality and cost reforms in the Medicare managed care arena, as well as the demonstration projects in the Fee-For-Service (FFS) world that seek to leverage the same principles (e.g., Accountable Care Organizations). But the Centers for Medicare and Medicaid Services’ (CMS) bundled payment reforms are now going beyond attracting those interested in playing in the reform sandbox to forcing even recalcitrant hospitals and providers to abandon the traditional payment system.

CMS announced that rules regarding bundled payments would go into effect for about 800 hospitals on April 1, 2016. Quite simply, the bundled payment program aims to take away the payment and care fragmentation that occurs when Medicare beneficiaries go into the hospital for complex procedures and will need significant aftercare and coordination. Who better to rely on for a coordinated approach to such care than the hospital behemoths around the country that should have in place the network associations, capital, and technology needed?

CMS wants to move at least 50% of providers from the transaction-based payment system to an alternative. This change helps meet this goal. Hospitals will now be in charge of ensuring that reimbursements for hip and knee replacement surgeries (both hospitalization and aftercare) are within a defined threshold in a 90-day period. Therefore, in order to achieve financial targets and good outcomes, it will be necessary for coordination between hospitals, inpatient rehab facilities, skilled nursing facilities (SNFs), home care agencies, specialists, rehabilitation providers, and care coordinators and managers.

CMS is beginning slowly. The agency will pay the downstream providers and hospitals on a transaction basis as they normally would. Unlike the hospitals, downstream providers do not share in upside or downside risk in the short run. The total costs for all services will be “trued up” at year’s end. If the total payments are below the bundled payment threshold, hospitals could gain significant additional reimbursement over the traditional system. Quality thresholds will also have to be reached to get any incentive payment. If bundled payment thresholds are exceeded, hospitals financial exposure could be significant when CMS seeks to recoup the “losses” in future years.

Indeed, the bundled payment is structured such that the vast majority of patients will need to skip higher levels of care post-hospitalization and go directly to home care or home with some support services. The problem is that a majority of post-operative care is now at these higher levels of care. Thus, the paradigm will have to shift fast or hospitals will be in trouble.

The key will be to get Medicare patients out of the hospital quickly; at the same time, days spent in certain other high-cost settings will need to be minimized. Planning for the appropriate care even before the hospitalization ends and continuously tracking the patients’ needs through care management is essential. Again, leveraging fairly cost-effective home care and other such services will make or break the hospitals and overall pilot.

CMS is hoping hospitals will have significant influence to steer those being discharged to low-cost and high-quality community providers who can help manage their care over the 90-day time period. The reality is that far too many are discharged to SNFs and other facilities without investigating or providing for adequate home-based supports. The literature even indicates that avoiding such facilities and/or limiting stays there promotes better outcomes. (Can anyone say MRSA?)

Managed care plans have been practicing this type of care transitioning for some time, but the record for those in the Medicare FFS is patchy at best – hence, the CMS program. The very best hospitals quickly move the patient from the facility to an appropriate post-operative care location and track the patient for up to 30 days. Others simply play a discharge planning game based on when the money will run out.

The 800 or so hospitals are in 67 randomly selected regions; two of the bigger regions are New York and Los Angeles. Hip and knee replacement surgeries are one of the most prolific procedures performed on the Medicare population and cost tens of thousands on average. At the same time, the surgery is not among those that have the most significant complication rates (except for the risk of open-wound infections). CMS says that bundled payments could save Medicare $343 million on the over 400,000 surgeries performed annually. About one-third of the surgeries are in the demonstration regions.

There have been voluntary bundling pilots in Medicare for a number of years now, but the move to force all hospitals in given regions to play is significant. It ties closely to the readmission and quality penalties that are also in place or going into effect.

The move is not without its detractors. While physicians and downstream providers are somewhat insulated from fallout because they will continue to receive direct payments and have no immediate risk, they are worried about the next iteration, where hospitals may divvy up some or all of the money. They worry that hospitals will treat them arbitrarily to get to a bottom line number. Also, they say there are the added administrative costs they will bear against an already inadequate payment structure.

As well, some hospitals have never built the infrastructure to support such an initiative. Hospitals with integrated delivery systems (who have captive SNFs, home health agencies, and even specialty providers) should do well. Areas that have yet to fully embrace technology and electronic medical records and have little integrated care delivery may be hardest hit, no matter their lofty or pure intentions. In general, the system of care in the FFS world by nature is fractured, with competing interests and misaligned incentives. Pile on the local politics and massive egos of hospital executives and providers in regional health care systems, and there is no guarantee that bundled payments will succeed.

Further, for now, the payments are based on hospital-specific, historic costs and there is some risk adjustment for certain surgeries (e.g., higher bundled thresholds for hip fractures as opposed to simple replacement). But the plan is to migrate the bundles to regional averages over time, which could create major issues for some hospitals. These hospitals claim that the unique profiles of their patients and costs will not be taken into account. One can see how some of this is valid. No matter what one thinks of the excesses in some hospitals, the teaching hospital caring for dual eligible patients (who have significant socio-economic barriers to care and few support mechanisms at home) may always have higher prices than the mainstream Medicare beneficiary in a middle class or affluent hospital setting.

In the end, the bundled payment pilot will be messy. There is no getting by this fact given the anemic state of the current FFS system. But CMS is fully in its rights to continue raging down the health reform road. As we said last week with regard to the Medicaid Uber Rule, a positive outcome may not be guaranteed but the alternative is to stand still as we have for decades and that will mean utter failure, collapse, and disintegration. The final rule already waives year 1 penalties and sets maximum gain and loss percentages in future years. But CMS is sure to liberalize some aspects of the pilot over time further, including the financial penalties in the outyears if hospitals miss the mark terribly. It will be a fundamental part of turning the massive healthcare aircraft carrier around. And these inevitable waves and gyrations will need to be forgiven, for — at last — CMS is venturing down a reform journey that is essential to America’s health care and economic future.

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, Commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel.

Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management, and administration.

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