Shifting Accountability: The Current State of Bundling Medical Costs

The Center for Medicare and Medicaid (CMS) announced that medical cost bundling may be a valuable tool for reducing medical costs.  The announcement was based on first-year findings from the Medicare Acute Care Episode (ACE) demonstration study.

CMS defines the objective of the study as to test the use of a “global payment for an episode of care as an alternative approach to payment for service delivery”.   (CMS Fact Sheet).  Payment will cover Medicare Part A and B services, including physician services, for inpatient stays associated with certain cardiovascular and orthopedic procedures.

The following hospital systems were selected to participate in the study (click the links to learn more about how each site is implementing the program):   Baptist Health Hospital LLC (Oklahoma City, OK),  Exampla Saint Joseph Hospital (Denver, CO),  Hillcrest Medical Center (Tulsa, OK), Oklahoma Heart Hospital, LLC (Oklahoma City, OK), and Lovelace Health System (Albuquerque, NM).    Medicare reimbursement rates were based on participating hospital competitive bids for each DRG listed for the cardiovascular and orthopedic procedures under study.   The applicable discount was expressed as a discount off the entity’s base DRG payment amount.

CMS established two incentive programs for study participants.   Patients are motivated to think economically when choosing hospital care providers as they can  share up to 50 percent of any Medicare savings realized.   These payments are designed to offset patient cost-sharing.  Hospitals may also offer rewards to clinicians and other hospital study who meet certain measures of clinical quality and service efficiency.   For example, physicians at Tulsa’s Hillcrest Hospital are guaranteed their regular surgical fees and receive  a 25% bonus from Medicare to keep costs down and reduce infection and readmission rates. (USA Today)

While a recent Annuals of Internal Medicine study indicates that surgeons express reservations about bundled payments (Internal Medicine News), the system is already being implemented in the private insurance sector.  Aetna, Cigna, Blue Shield of California and Health Net have signed contracts with a number of hospital systems, including Cedars-Sinai Medical Center and UCLA.   Payors will be charged global fees for the services associated with hip and knee replacements.  Payments will cover  hospital care, physician services, tests, and most other aspects of medical care from admission through 90 days after discharge.   Any savings realized in these contracts will be shared by the hospital facility and clinicians.

Geisinger Health System may have the most extensive experience with a bundled payment system.   Their experience has been cited by the Obama administration.  By managing patient compliance and rewarding staff high quality, Geisigner is being recognized as a possible model.   Geisinger has reduced hospital readmissions by 25%.

Tea Leaves

Everybody Likes a Healthy Wallet

Tea Leaves is the first of an opinion column that will occasionally appear in Verity Reports.

An old insight was confirmed while I was in the process of researching today’s feature article on bundled payments.  I f you want to predict the future of health care policy then simply apply the tenet:  everybody likes a healthy wallet.

One of the goals of Verity Reports is to give readers an edge about how health reform is changing the medical care environment.   Verity Reports targets activities that will create big changes.   Hopefully, our posts will give you the time to prepare for these changes.  Bundling is a perfect topic to illustrate how we are trying to meet this goal. Bundling is a sleeper issue.   There’s not much about it in the news but there is a lot of activity around this concept.   Therefore, bundling may create a lot of change.  It may be the leading factor in driving down  medical costs …..  and solidly securing health reform.

I know that I am making some pretty powerful predictions”.

Bundling is defined by RAND as a payment system that “ would make a single payment for all services related to a treatment or condition, possibly spanning multiple providers in multiple settings”.  (RAND, Overview of Bundled Payment).   The strategy is currently being tested by CMS in a multi-site demonstration study (CMS’ Medicare Acute Care Episode (ACE) study).    I think that bundling is here to stay because, as it is currently defined, it will transform the current model of medical cost accountability.

In the ACE  study, both hospitals and patients will be monetarily compensated for cutting costs.   In effect, bundling creates a dramatic shift in who carries the burden of creating the cost savings.  The burden is shifted away from hospitals and patients to physicians, medical device/supply manufacturers, and pharmaceutical companies.  This gives hospitals and patients more influence than they have ever had on medical cost.   It also strengthens the staying power of health care reform.

Yes, I know that I am making some pretty big predictions.   Bundling is only now being tested as a cost savings strategy.   Even if the results of the ACE study confirms it as valuable, the practice of bundling will not come into full effect until 2018.   In addition, there is no doubt that the campaign against health reform is real.  Next month’s elections could put avowed health reform opponents into power.   Also, putting physicians, medical device/supply manufacturers, and pharmaceutical companies  on the defensive with bundling — three groups with tremendous political power — could create even greater political push-back on current health care reform policy.

Health care reform, however, is not limited to the political arena.   Health care reform will always be tightly bound by a goal that is fundamental to market economics.   That goal is  revenue generation and everybody likes a healthy wallet. Bundling has the potential of saving money.  Insurance companies are already securing bundling agreements with hospitals.   These agreements will be in place regardless of the future of health care reform.   So stop waiting for change to happen.   It’s already here.

Will you have a seat at the policy table?

Effective January 2011, the new Center for Medicare and Medicaid Innovation (CMI) will begin full-scale operations to test  innovative payment and service delivery models.  The goal is to cut program expenditures while preserving or enhancing the quality of patient care.

…. almost all of the reform of the delivery system potential hinges on this innovation center.

Focus on provider payment and practice management

The Commonwealth Fund (6/8/10) reports that CMI will be responsible for developing at least 18 reform models specified in the new health reform law, including:  patient-centered medical homes, promotion of care coordination through salary-based payment, community-based health teams to support small-practice medical homes, use of health information technology to coordinate care for the chronically ill, and salary-based payment for physicians.

The Steward Group can help you develop position papers on issues that are important to your group.

In order to achieve the law’s ambitious timetable, Centers for Medicare and Medicaid Services (CMS) Administrator Don Berwick announced last Monday that Richard Gilfillan, MD, has been named the Acting Director of the CMI.  Gilfillan currently directs CMS’ performance-based payment policy staff.   Before joining CMS,  Gilfillan was a consultant for Geisinger Consulting Services.

Politically sensitive research agenda

Gail Wilensky, former chief of the Health Care Financing Administration (now the CMS) told Kaiser Health News (9/29/2011) that Dr. Gilfillan will have quite a “juggling act”.  He added that Dr. Gilfillan’s position “is one of the most important positions in HHS because almost all of the reform of the delivery system potential hinges on this innovation center.  It is as key a position as there is.   “There will indeed be pushback from people who see themselves as losers in the face of this change” and the director must be “politically savvy and sensitive but still being willing to be a risk taker.”