An Industry Expert Shares Insights on the Challenges and Opportunities around Bundled Payments

Bundled-payment contracting—whether between public payers or private payers—is an enormous subject of interest in hospitals, medical groups, and health systems these days—and for good reason. Not only have a lot of developments been evolving forward with regard to bundled payment models under the Medicare program—just two weeks ago, senior officials at the Centers for Medicare and Medicaid Services (CMS) announced the launch of a new voluntary bundled payment model called Bundled Payments for Care Improvement Advanced (BPCI Advanced)—bundled-payment contracting is taking off in a big way now, too, between private health insurers and providers.

Meanwhile, policy shifts at the highest levels of the Department of Health and Human Services (HHS) have left many provider leaders feeling uncertain as to where things are headed right now at the federal level. On the one hand, CMS at the end of November finalized a rule that will cancel mandatory hip fracture and cardiac bundled payment models (HHS had issued a proposed rule for that cancellation back in August of last year). On the other hand, earlier this month—in fact, just before the announcement of the BPCI Advanced model—Alex Azar said during a Senate Finance Committee hearing on his nomination as HHS Secretary, that he was open to mandatory bundled payment models, in principle. That stance appeared to be a reversal of the position of Tom Price, who, during his relatively brief tenure as HHS Secretary, from February through September 2017, had expressed very strong reservations about mandatory bundled-payment models.

Meanwhile, “BPCI Advanced” will qualify as an advanced alternative payment model (advanced APM) under the Quality Payment Program (QPP) under the MACRA (Medicare Access and CHIP Reauthorization Act of 2015) law; under the Advanced APM track in MACRA, providers take on financial risk to earn the Advanced APM incentive payment.

So things are moving forward, even if not evenly. But industry leaders and observers in the know agree: the bundled-payment phenomenon is moving ahead. Among those leaders is Charlene Frizzera, a former acting administrator of CMS, with over 30 years of experience in federal healthcare. Frizzera is currently president of the Washington, D.C.-based consulting firm CF Health Advisors, where she advises corporate, government and not-for-profit organizations about health care policies and reform like bundled payments and joint replacement. Frizzera spoke recently with Healthcare Informatics Editor-in-Chief Mark Hagland regarding the ongoing developments in this area. Below are excerpts from that interview.

Let’s start at a 40,000-foot level. How do you see the U.S. healthcare system’s journey into bundled-payment contracting right now?

Based on 30 years at CMS, it’s important to keep in mind that bundling is not a new concept; it’s been around forever. And at CMS, how did we come up with bundled payments? We looked at claims, and when we started looking at claims for ESRD (end-stage renal disease) patients—that was probably the first bundle. We found that the services were pretty consistent across providers. And so instead of paying separately, we felt it would be more effective to pay for a bundle, rather than for separate delivery of services. That’s the same concept even now. But the more CMS gets into patient-centric payment issues, the more they’ll be looking at specific disease states, both to save money, but even more importantly, to give the controller of the bundle the ability to more effectively manage care for that patient. Where the controversy comes in is around what gets bundled. How specific, how generic, should the bundle be? And CMS has published the 48 disease states they’d like to bundle. It’s on the website of the Innovation Center [the Center for Medicare and Medicaid Innovation, or CMMI].

Charlene Frizzera

The joint replacement bundle was made mandatory, of course.

Yes, but it had actually started out as a voluntary bundle. When it started to show success, they made it mandatory. And to date, the Innovation Center has the ability to write a regulation to change a payment system, without going through legislation, as the result of a successful demonstration. And that cuts a pretty big step out of the process. What CMS tried to do that some in healthcare didn’t like is making a demonstration mandatory from the beginning. The drug pricing demonstration was what created so much furor. That was back in 2016; it was one of the last regulations that the Obama administration tried to issue.

What’s interesting about the joint replacement bundle is that it was one of the most successful bundles they had ever put together. And when you think about what they bundle, they bundle things that have the least amount of risk to the beneficiary. Joint replacement—when you look at all those DRGs, it’s the one where there was the least amount of risk to the beneficiary, and the greatest potential reward, with the belief that a long hospital stay was not necessary. And the most successful orthopedic surgeons started doing pre-habilitation and post-habilitation with the patients. The pre-hab got the patients ready for the surgery, and because of the pre-habilitation, the post-habilitation was usually shorter, too. And that bundle was incredibly successful, when the surgeons found a way to rethink, how to make the beneficiary healthy when they come in, and get healthier more quickly afterwards. That was hugely successful.

What is your perspective on the politics of this going forward? As we all know, Secretary Price made numerous very strong statements disparaging mandatory bundles; he also changed the joint replacement bundle from mandatory to voluntary.

A couple of things. Secretary Price was very politically committed. I think he made a lot of promises to physicians when he became secretary, when he described “bad bundles”—though he didn’t use that phrase. But then they [at HHS and CMS] started looking into the bundles… And the bundles that saved money—if you stopped the bundle, you’d have to find some way to replace that savings—it’s called “pay-fors.” That was the first piece of this, per the budget. Further, they found out that there actually were a lot of people who did like the bundles. And taking away the bundle—that’s a big process, right? And so to de-bundle a set of payments is hard. What Price did do is that he stopped the mandatory bundle on joint replacement.

And again, the headlines were… but he just said, it’s not going to be mandatory. So in the end, he didn’t do much to change bundles, except make the joint replacement not mandatory. Interestingly enough, they’ve come out with a new bundle incorporating hospital and outpatient care together [the BPCI Advanced model] that they just announced, and put out the award for the new bundle and are looking for recipients. And they’re looking for people to apply by October 1.

Do you have broad overall thoughts about mandatory versus voluntary bundles?

The folks who didn’t like the mandatory bundle are just the folks who liked being paid a lot of fee-for-service money. You probably won’t make as much money under a bundled payment. But you can actually make just about as much money under the joint replacement bundle if you do the pre- and post-habilitation. CMS’s idea is that, mandatory or not, folks will stop going to those organizations that don’t do as well under the program. So what happens is word of mouth. And it’s not going to happen overnight. But there is going to be movement in the beneficiary space for practices that do the bundles that keep patients healthier. So I think it should be mandatory. It’s going to force surgeons to manage and coordinate care. And again, that’s just for joint replacements. They don’t have bundles for back surgery. And it’s so common these days.

Ultimately, how many potential areas might there be in which to develop bundles?

There could be hundreds of bundles, depending on where CMS wants to go. For this latest, they’ve identified 29 inpatient and 3 outpatient codes, to bundle together. And the idea is that they want the hospitals and outpatient clinics to work together—it’s for cardiac defibrillation; the second is back and neck except spinal fusion; and the third is percutaneous coronary intervention (PCI). So, that’s two heart procedures, and a back-and-spine procedure.

How quickly will providers get good at managing bundled payments?

Obviously, it depends on the physicians. I think that, for the surgeons and other physicians who are part of a bigger provider group or healthcare systems, this will be easier to do; for the others, for the smaller practices, it will be harder; it’s hard to just call someone up and say, “Hey, you wanna do a payment with me?”

Data, analytics and information-sharing will prove to be very important to success in this area, correct?

Absolutely. If you don’t know who you’re serving, what you’re paying, and what services you’re providing, you can’t manage a bundle. And sharing is important, but you have to have the data first. And part of the original joint replacement bundle concept was gathering the data together. And as you know, claims data is not great. That’s all CMS has, so that’s what they’ll use. But the clinical record with that is what makes it work.

And, as provider leaders are telling us, marrying the clinical and claims data remains a huge challenge, correct?

Yes, absolutely.

Do you have any advice for the CIOs and CMIOs of patient care organizations around this?

I say this at every conference I speak at: the only way to change the healthcare system is through data. You don’t really know what to change until you have data to show what’s happening. And part of what limits our data today is providers and payers collecting data based on what they’re paid on. If you get a capitated payment, you collect data for a capitated payment; if you get paid a bundle, you collect data on a bundle. And the successful providers of tomorrow will figure out today what kinds of data they’ll be paid on years down the road. What are the three or four possible types of payments I’ll be receiving? And the services provided.

Tell me a bit more about the “pre-habilitation” concept?

Certainly. I’ve been advising a start-up company called PeerWell, which has developed a patient-facing app. The thing is that, while physicians automatically factor post-acute care into how successful their patients might be post-surgery, many don’t realize how pre-habilitation activities can help patients’ processes. By participating in a pre-hab program, such as that offered by PeerWell, hip and knee replacement candidates can optimize their health before surgery, offering a way for hospitals to contain the cost of care per patient by focusing on improving patient health pre-procedure, therefore reducing the amount of time needed in a costly skilled nursing facility for post-op rehab. By doing so, more patients are in a better condition to be discharged directly home after surgery, cutting after-care costs dramatically—which has shown to be a large cost to providers.

Do you have any metrics to share around that?

Yes. A one-percent improvement in terms of the percentage of patients discharged to their homes, will result in $100,000 in cost savings. Meanwhile, if clinicians can reduce the cost of an episode by $1,215 through one to two hours of pre-hab care, that would represent a cost savings of $1.2 million in cost, for a hospital that performs 1,000 joint replacement cases a year.

What are the critical success factors involved in this pre-hab care management?

There are several. First, they connect very directly to patients. Patients connect pretty easily with the presentation. It’s simple. Patients can review with them what the plan is. It really does create the continuity between the beneficiary and the surgeon, and they guide them through the pre-hab process. So having a care manager do the pre-hab process. It needs that little bit of a personal touch. So that they pay attention to the pre-hab procedures, and patients stick with the program and prepare for the surgery; it’s really pretty impressive.

The reality is that bundles aren’t going away. So people who think bundles aren’t going to be a form of payment in the future, are kidding themselves.