A New World of Bundled Payments is Upon Us: Are Hospitals Ready?

Nov. 1, 2016
Federal healthcare leaders have continued to prioritize the shifting of Medicare payments from fee-for-service to alternative payment models. But are hospitals ready to participate in mandatory bundled payments?

In July, the Department of Health and Human Services (HHS) continued its bold endeavor into the world of value-based healthcare with an announcement that introduced a mandatory bundled payment for care for heart attacks and for cardiac bypass surgery.

As reported by Healthcare Informatics at the time of the announcement, from HHS Secretary Sylvia Mathews Burwell, the proposal contains three new significant policies:

  • New bundled payment models for cardiac care and an extension of the existing bundled payment model for hip replacements to other hip surgeries;
  • A new model to increase cardiac rehabilitation utilization; and
  • A proposed pathway for physicians with significant participation in bundled payment models to qualify for payment incentives under the proposed Quality Payment Program, within the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).

Indeed, the July 25 announcement of the mandatory bundled payment program for heart attack care and for cardiac bypass surgery stated, “The hospital in which a Medicare patient is admitted for care for a heart attack or bypass surgery would be accountable for the cost and quality of care provided to Medicare fee-for-service beneficiaries during the inpatient stay and for 90 days after discharge. The proposed cardiac care policies would be phased in over a period of five years, but would begin July 1, 2017 for hospitals located in the 98 metro areas participating in the model (about one-quarter of all metro areas in the nation).” These new bundled payment models for cardiac care, in addition to the extension of the existing bundled payment model for hip replacements to other hip surgeries, are yet another major step in forcing reimbursement forward into value-based purchasing.

This new initiative followed a declaration of mandatory bundled payments for total hip and knee replacement procedures, which was imposed on providers in 67 metropolitan statistical areas (MSAs) just last November. As such, one signal from federal healthcare leaders has become increasingly clear: the shifting of Medicare payments from fee-for-service to alternative payment models. Coming just as the aforementioned Comprehensive Care for Joint Replacement (CJR) initiative gets underway, the new models are, according to HHS, intended to reward hospitals that work together with physicians and other providers to avoid complications, prevent hospital readmissions, and speed recovery.

But a key question is, are the hospitals ready to comply? Joel Splan, former director of information services, chief security executive and director of technology and infrastructure management at Northwestern Memorial HealthCare in Chicago, and current CEO of PinPointCare, also a Chicago-based company, which develops technology to aide with care coordination, says hospitals will face several challenges in this new world of bundled payments. Splan, who not long ago ran two companies simultaneously that were in the value-based care vendor space, says that while fee-for-service has its benefits, it “has gone astray, and value-based care can help straighten that out to help healthcare become a more sustainable sector.” More excerpts of the discussion between Splan and Healthcare Informatics can be read below.

What was your reaction to the proposed new models that expand mandatory participation in bundled payments?

Well, I am excited since I am in the business. When the CJR mandatory bundled payment model was announced last July, that was exciting because everyone was feeling the downward [shift] from the Bundled Payments for Care Improvement [BPCI] initiative, and was wondering what was next. People were too excited though; what people thought would be a bull rush into CJR was more of a slow trickle. For organizations trying to help providers with value-based care, they thought there would be all this activity due to the penalties that would be in place, but providers haven’t really latched onto it. In some cases with large academic organizations, you’re talking about a million bucks here or there, and I just don’t know if it has hit their radar.

But with the cardiac announcement this summer, we’re seeing a decided shift into the amount of attention that people are paying to value-based care and bundles. Cardiac [surgery] isn’t something you can opt out of or send these procedures down the street; you’ll have to deal with them as part of your business. Now, as far as the urgency level? We think it will take more time to play out but it’s here [to stay] and will expand.

Some skeptics say there should be more room for negotiation within these models, as hospitals under Medicare have relied on cardiac care and total joint replacement procedures as revenue “cushions.”

Well, I would say there is always an argument to be made around the particulars, the timing, and the pooling. You have an opportunity to get out there and voice an opinion, but when the ruling comes in the most important thing you can do is jump in with both feet. Right now, your pricing is primarily being dictated by your past performance, which may be good or bad, but the smaller fraction is based on your geography or your peers’ geography. That percentage will only increase, and the longer you wait, the more your pricing will be dictated by your competitors. So if you haven’t started yet, you are probably behind.

How are hospitals you are working with reacting to these mandates?

They are taking a wait-and-see approach. You have an election coming up, so there are many different pressures hospitals have. I have real empathy for them. I understand that right now, fee-for-service is working for them, and at the same time value-based care is a little bit of a distraction, even though it could become something beneficial for them down the road. There are just so many things on hospitals’ plates, so “wait-and-see” is a prudent approach for many of them. As a technology provider in this space, you just have to deal with that.

What is their level of readiness to participate in the world of bundled payments?

The level of readiness here is weak. There are a couple ways to tackle the problem of patients who are you accountable for being outside your acute care facility’s four walls. One is that you can buy up all of those post-acute care providers and try to force your patients into those venues. That will never work. In a world of choice and consumerism, people will want to make their own choices, as they should. You won’t be able to control where a patient goes, so you need data and analytics regardless of where they go.

You need to understand how they are performing to plan, and that’s where technology has to step in and fill that void. No matter where the patient goes, even if it’s outside of your network, you need information on how they are performing, you need to communicate with them, and you need to set expectations. Companies that have entered this space are helping, as the EHRs [electronic health records] have not done the job. They are too expensive and time consuming to put an entire region like Chicago on the EHR of its choice, whatever that may be.

How challenging is it that hospitals still have their feet in both buckets—the fee-for-service one and the value-based care one?

The shift is starting, but you are turning an entire revenue system away from charge-based accounting toward cost-based accounting. That’s not easy and the hardest part is you will be in this blended world for a period of time where value-based care is growing and fee-for-service is contracting, but you are in both worlds for now, and maybe forever. This is cause for a lot of the frustration for providers; they have some patients to worry about in the cost-based world of ACOs [accountable care organizations] and bundled payments, and then they have traditional fee-for-service, and they have to figure out who gets paid for all of these things. That’s a whole lot of complexity. 

So what are the specific kinds of analytics that organizations should be leveraging?

For the organization still getting started in bundled payments, the first thing is asking yourself where your patients are going. That can be hard to get your arms around at times. Second, how well are they being taken care of in those places? In the fee-for-service world, you take care of a patient and he or she gets discharged, walks out the door, and you don’t worry about that person anymore. But it’s not like that anymore, so getting data and analytics around patients’ post-acute care and direct-to-home is an important part of this. That portion of the episode has long been ignored, but now it’s the critical piece. You need to control that post-acute spend for the orthopedics mandate and for the cardiac mandate, you need to control readmissions. So it’s all about outside of the four walls now.

Do you have any insight into why these specific metropolitan statistical areas (MSAs) were selected for participation?

For the 67 MSAs in the CJR initiative, I know that it was not random. Areas that had not engaged in the BPCI pilot, and areas where Medicare was a little concerned about some of the physician billing, were selected. They wanted to target these areas and tell them that they cannot hide on this. As far as the 98 MSAs for the cardiac initiative, I’m not as sure, but I imagine it was somewhat of the same idea.

Total healthcare spending is expected to rise to $5.6 trillion by 2025. Is it fair to say that this world of accountable care and value-based care will be the one that providers will need to be a part of moving forward?

Medicare is going broke. If they were to save $1 per patient I am sure they would do it. The message here is that while you may not like it, CMS has already made the move. They are the first domino, and commercial payers will follow; everyone will just have to get used to it. It’s the right thing to do, and beyond helping with Medicare, think about the cascading effect. With bundled payments, you are making providers more efficient, but those margins are going to spill over into pharmaceuticals, into devices, and every area in healthcare will become more cost efficient because it will roll up into a bundled payment. Those extra costs will be a huge ancillary benefit to the system as a whole.

So what’s next for hospitals under these new mandates? What advice can you offer?

The first thing is socializing some of these concepts and getting doctors up to speed. Value-based care is such a different world for a hospital; it’s not something you can just walk in one day and say, this is what we’re going to do, here’s the technology. These are revolutionary concepts that will fundamentally change how hospitals will get paid. It starts at the top and you need urgency around it. And you have to start talking to the post-acute networks and get those people engaged. With the readmission penalties, that’s a weak spot.

Overall, the more progressive the organization is in terms of thinking about the future and the more open they are to bundled payments, being part of a pilot, or accepting the mandate, the better. There doesn’t need to be as much fear and anxiety as there seems to be. If you get in early you will probably get the lion’s share of the benefits.