Ready For the New World of Mandatory Bundles? Because the Federal Payment Reform Train Is Clearly on a High-Speed Track Now

Oct. 4, 2016
HHS’s announcement on July 25 of two new mandatory sets of payment bundles for cardiac care is confirming the emerging reality of Medicare reimbursement for hospitals and doctors going forward

The news out of the Department of Health and Human Services (HHS) on Monday was momentous for healthcare providers—both hospitals and physicians—even if it didn’t receive as much attention as it might have. Perhaps it’s because it’s the middle of the summer, and many healthcare professionals are distracted by a variety of both work- and non-work-related things?

In any case, coming on the heels of mandatory bundled payments for total hip and knee replacement procedures being imposed on providers in 67 metropolitan statistical areas (MSAs) just last November, this new mandate, this new mandate announced this week, to be imposed on 98 MSAs, amounts to a double-whammy. Why? Well, let’s look at what just happened, and then at its implications for hospitals and physicians.

As we reported on Monday, on that day, Health and Human Services Secretary Sylvia Mathews Burwell announced on the HHS website that Medicare-participating hospitals and doctors in MSAs will be subject to bundled payments for care of patients who have suffered heart attacks (myocardial infarctions) and who undergo coronary artery bypass graft (CABG) surgery. The announcement said that “Today, the Department of Health & Human Services proposed new models that continue the Administration’s progress to shift Medicare payments from quantity to quality by creating strong incentives for hospitals to deliver better care to patients at a lower cost. These models would reward hospitals that work together with physicians and other providers to avoid complications, prevent hospital readmissions, and speed recovery.”

The three “new significant policies” the July 25 announcement highlighted were the following:

“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.”

Secretary Burwell was quoted in the announcement as saying, “Having a heart attack or undergoing heart surgery is scary and stressful for patients and their families. Today’s proposal,” Ms. Burwell said, “is an important step to improving the quality of care Americans receive and driving down costs. By focusing on episodes of care and rewarding successful recoveries, bundled payments encourage hospitals to coordinate care to achieve the best outcomes possible for patients.”

And Patrick Conway, M.D. Principal Deputy Administrator and Chief Medical Officer in the Centers for Medicare & Medicaid Services (CMS), was quoted in the announcement as saying, “Patients want the peace of mind of knowing they will receive high-quality, coordinated care from the minute they’re admitted to the hospital through their recovery. The variation in cost and quality for the same surgery at different hospitals,” he added, “shows there are major opportunities for hospitals included in today’s models to reduce costs, improve care, and receive additional payments by improving patient outcomes.”

This cardiac care bundled-payment mandate was really no surprise; indeed, its coming had long been rumored. Nonetheless, it could prove to be a “shock to the system” for both physicians and hospital leaders once it becomes fully implemented—and, as with the joint replacement bundled-payment mandate (which was also slightly expanded upon in this proposed rule), it will almost certainly be expanded geographically beyond the initial 98 MSAs—perhaps to all or nearly all Medicare program MSAs.

Why is it so important? Crucially, because cardiac care and total joint replacements had until recently been revenue lifesavers for hospitals under Medicare. Even as participation in Medicare’s value-based purchasing program, its avoidable readmissions reduction program, and its healthcare-acquired conditions reduction program, had all been mandated under the terms of the Affordable Care Act (ACA) going back to 2010, cardiac care and joint replacement procedures had been areas of relative “cushion” for hospitals, helping many hospitals that might otherwise be in real financial trouble already, to stay afloat.

It was very helpful to speak about this subject this week with Clay Richards, the president and CEO of the Nashville-based NaviHealth. NaviHealth is a post-acute care transitions management company, and is owned by the Dublin, Oh.-based Cardinal Health. “This is pretty indicative of CMS’s continued approach to and belief in, bundling as a pretty significant mechanism to help them achieve their value-based payment goals,” Richards told me. He added, “Remember, in addition to these mandatory bundles, CMS also announced this week that they’re going to open up a voluntary bundle program again in 2018. When you add this to the April 1 mandate implementing the hip and knee replacement bundle, it’s pretty clear this is how CMS will implement payment reform.”

With regard to the Bundled Payments for Care Improvement (BPCI) Initiative, which began to go live in October 2013 and is testing four different models for payment under Medicare, and has been well-described in such publications as Health Affairs, Richards says that “I think you’ll see more conditions added, as well as a combination of mandatory and voluntary bundles coexisting for a significant  period of time. I think from a policy perspective, CMS likes the ability to offer both” mandatory bundles and voluntary ones. “For hips and knees and cardiac, the hospital is the mandated convener. In the voluntary bundles, you can have hospitals, doctors, or third-party conveners managing the risk,” he notes.

The key challenge here, Richards notes, is that, “In these two programs”—both mandatory bundled-payment programs—“hospitals are taking on insurance-type risk, for 90 days, and a significant portion of the cost they’re responsible for is incurred outside the hospital. So having good data analytics and good connectivity, will be essential.” Optimized discharge planning management will be vital, he insists.

What about that $5.631 trillion number?

None of these developments around mandatory and voluntary bundles are emerging out of a vacuum; instead, they are all reflective of the cost cliff that the U.S. healthcare system is about to go over. As I noted in a blog just last week, the Medicare actuaries had their most recent spending projections published in the July issue of Health Affairs. As our July 18 news article noted, “In an article entitled ‘National Health Expenditure Projections, 2015-25: Economy, Prices, and Aging Expected To Shape Spending and Enrollment,’ the authors…predicted that the percentage of the gross domestic product (GDP) spent on healthcare every year across the U.S. healthcare system would grow from 17.5 percent in 2014 to 20.1 percent in 2025 with total spending rising from $3.3013 trillion in 2014 to $5.631 trillion in 2025.” Yes. That is indeed 5.631 trillion dollars.

And all of the initiatives that federal healthcare officials are creating now—around readmissions reduction, value-based purchasing for both hospitals and physicians, bundled payments, accountable care, and every other federal development—are closely tied to the awareness on the part of those same federal officials that there is no turning back now, and that the only way forward will be a complex combination of cost management, clinical performance improvement, patient outcomes and satisfaction improvement, and the leveraging of data and healthcare IT—will ultimately help to bend that cost curve.

So this latest announcement of two new sets of bundles is a development that healthcare leaders, including healthcare IT leaders, really, really need to pay attention to. It involves areas of care that produce a significant percentage of most hospitals’ revenues; and success will require rigorous, arduous work.

So what does Clay Richards think that CIOs, CMIOs, and other healthcare IT leaders should be doing right now? “What’s critical is that the most important lever in the process is the discharge plan,” he advises. “So getting your discharge planning optimized is so important. You get benefits from those capabilities in the FFS world, but certainly that lays the tracks for a more complete clinical management system. And if you’re CEO of the hospital, you’ve got to be thinking that five, ten years from now, the shift from fee to value… and certainly, investments in technology will become really important.”

Once again, federal officials have sent a major signal to healthcare providers about where all of this is going. And it’s really important for hospital leaders and physicians to listen, because this train is on a high-speed track.f

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